Item 1. Business
Key Information
In this Annual Report unless otherwise indicated or the context otherwise requires, (1) the terms “we,” “us,” “our,” “the Company” and “Intelsat” refer to Intelsat S.A., and its subsidiaries on a consolidated basis, (2) the term “Intelsat Holdings” refers to our indirect subsidiary, Intelsat Holdings S.A., (3) the term “Intelsat Investments” refers to Intelsat Investments S.A., Intelsat Holdings’ direct wholly-owned subsidiary, (4) the term “Intelsat Luxembourg” refers to Intelsat (Luxembourg) S.A., Intelsat Investments’ direct wholly-owned subsidiary, (5) the term "Intelsat Envision" refers to Intelsat Envision Holdings LLC, Intelsat Luxembourg's direct wholly-owned subsidiary, (6) the terms “Intelsat Connect” and “ICF” refer to Intelsat Connect Finance S.A., Intelsat Envision’s direct wholly-owned subsidiary, (7) the term “Intelsat Jackson” refers to Intelsat Jackson Holdings S.A., Intelsat Connect’s direct wholly-owned subsidiary, and (8) the term “Intelsat” refers to specific Intelsat-satellites. We refer to Intelsat General Communications LLC, one of our subsidiaries, as “Intelsat General.” In this Annual Report, unless the context otherwise requires, all references to transponder capacity or demand refer to transponder capacity or demand in the C-band and Ku-band only.
Recent Developments
Voluntary Reorganization under Chapter 11
On May 13, 2020, Intelsat S.A. and certain of its subsidiaries (each, a “Debtor” and collectively, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Eastern District of Virginia (the “Bankruptcy Court”). Primary factors causing us to file for Chapter 11 protection included the Company’s intention to participate in the accelerated clearing process of C-band spectrum set forth in the U.S. Federal Communications Commission’s (“FCC”) March 3, 2020 final order (the “FCC Final Order”), requiring the Company to incur significant costs related to clearing activities well in advance of receiving reimbursement for such costs and the need for additional financing to fund the C-band clearing process, service our current debt obligations, and meet our operating requirements, as well as the economic slowdown impacting the Company and several of its end markets due to the novel coronavirus (“COVID-19”) pandemic.
On August 14, 2020, the Company filed its final C-band spectrum transition plan with the FCC. The FCC Final Order provides for monetary enticements for fixed satellite services (“FSS”) providers to clear a portion of the C-band spectrum on an accelerated basis (the “Acceleration Payments”). On September 17, 2020, the Company announced it finalized materially all of its required contracts with satellite manufacturers and launch-vehicle providers to move forward and meet the accelerated C-band spectrum clearing timelines established by the FCC. Under the FCC Final Order, the Company is eligible to receive Acceleration Payments of approximately $1.2 billion and $3.7 billion based on the milestone clearing certification dates of December 5, 2021 and December 5, 2023, with the respective payments expected to be received in the first half of each successive year, respectively, subject to the satisfaction of certain deadlines and other conditions set forth therein.
The Chapter 11 process can be unpredictable and involves significant risks and uncertainties. As a result of these risks and uncertainties, the amount and composition of the Company’s assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 Cases, and the description of the Company’s operations, properties and liquidity and capital resources included in this Annual Report may not accurately reflect its operations, properties and liquidity and capital resources following the Chapter 11 process.
Pursuant to various orders from the Bankruptcy Court, the Debtors have received approval from the Bankruptcy Court to generally maintain their ordinary course operations and uphold certain commitments to their stakeholders, including employees, customers, and vendors during the restructuring process, subject to the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. For additional information regarding the Chapter 11 Cases, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Voluntary Reorganization under Chapter 11.
The filing of the Chapter 11 Cases constituted an event of default that accelerated substantially all of our obligations under the documents governing our prepetition existing indebtedness. For additional discussion regarding the impact of the Chapter 11 Cases on our debt obligations, see Item 8, Note 12—Debt.
On June 9, 2020, Intelsat Jackson received approval from the Bankruptcy Court (the “DIP Order”) to enter into a non-amortizing multiple draw superpriority secured debtor-in-possession term loan facility (the “DIP Facility”), in an aggregate principal amount of $1.0 billion on the terms and conditions as set forth in the DIP Facility credit agreement (the “DIP Credit Agreement”), which has since been amended. For additional information regarding the DIP Facility, DIP Credit Agreement, DIP Amendment No. 1 and DIP Amendment No. 2, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt.
On February 11, 2021, the Debtors entered into a plan support agreement (together with all exhibits and schedules thereto, the “PSA”), with certain of the Debtors’ prepetition secured and unsecured creditors (the “Consenting Creditors” and together with the Debtors, the “PSA Parties”). The PSA contains certain covenants on the part of the PSA Parties, including but not limited to the Consenting Creditors voting in favor of the Joint Chapter 11 Plan of Reorganization of Intelsat S.A. and Its Debtor Affiliates (as proposed, the “Plan”), and provides that the Debtors shall achieve certain milestones (unless extended or waived in writing). On February 12, 2021, the Debtors filed the Plan and the Disclosure Statement for the Joint Chapter 11 Plan of Reorganization of Intelsat S.A. and Its Debtor Affiliates (the “Disclosure Statement”), which describes a variety of topics related to the Chapter 11 Cases, including (i) events leading to the Chapter 11 Cases; (ii) significant events that took place during the Chapter 11 Cases; (iii) certain terms of the Plan; and (iv) certain anticipated risk factors associated with, and anticipated consequences of the Plan. The Bankruptcy Court is currently scheduled to determine the adequacy of the Disclosure Statement and whether the Plan meets the requirements of the Bankruptcy Code in the second quarter of 2021.
Business Overview
Overview
We operate one of the world’s largest satellite services businesses, providing a critical layer in the global communications infrastructure.
As the foundational architects of satellite technology, Intelsat operates the largest, most advanced satellite fleet and connectivity infrastructure in the world. We apply our unparalleled expertise and global scale to reliably and seamlessly connect people, devices and networks in even the most challenging and remote locations. We provide diversified communications services to the world’s leading media companies, fixed and wireless telecommunications operators, data networking service providers for enterprise and mobile applications in the air and on the seas, multinational corporations and Internet Service Providers (“ISPs”). We are also the leading provider of commercial satellite communication services to the U.S. government and other select military organizations and their contractors. Our network solutions are a critical component of our customers’ infrastructures and business models. Generally, our customers need the specialized connectivity that satellites provide to pursue their mission. In recent years, mobility services providers have contracted for services on our fleet that support broadband connections for passengers on commercial flights, cruise ships and commercial shipping, connectivity that in some cases is only available through our satellite network. Further, in December 2020, through our acquisition of Gogo’s commercial aviation business (“Gogo CA”), we became the largest direct provider of in-flight connectivity (“IFC”) services to commercial airlines. In addition, our satellite neighborhoods provide our media customers with efficient and reliable broadcast distribution that maximizes audience reach, a technical and economic benefit that is difficult for terrestrial services to match. In developing regions, our satellite solutions often provide higher reliability than is available from local terrestrial telecommunications services and allow our wireless and enterprise customers access to geographies that they would otherwise be unable to serve.
In the future, we expect our satellite network to be an integral part of machine-to-machine networks, especially those requiring massive software updates best delivered via broadcast. Additionally, our networks will play an instrumental role in delivering reliable and redundant connectivity solutions to autonomous and connected cars, as well as support for unmanned aerial vehicles in commercial applications. As we invest in new constellations, such as our next generation software-defined satellite (“SDS”) platform, partner on new earth observation technology, invest in new ground technologies, such as electronic antennas and standards-based modems, and integrate into the 5G network core, we are creating a portfolio of solutions that will be interoperable with other telecommunications technologies and seamlessly integrated with other telecommunications solutions to address the immense connectivity requirements of a fully-connected and converged landscape. Our objective is to transform the customer experience, and we are building a flexible, 5G enabled global network to realize this vision.
Through the Gogo Transaction, we became the global leader in providing IFC and wireless in-flight entertainment (“IFE”) solutions to the commercial aviation industry. Services provided by our Gogo CA business include passenger connectivity, which allows passengers to connect to the Internet from their personal Wi-Fi-enabled devices; passenger entertainment, which offers passengers the opportunity to enjoy a broad selection of IFE options on their laptops and personal Wi-Fi enabled devices; and Connected Aircraft Services (“CAS”), which offer airlines connectivity for various operations and currently include, among others, real-time credit card transaction processing, electronic flight bags and real-time weather information.
We hold the largest collection of rights to well-positioned geostationary orbital slots in the most valuable C- and Ku-band spectrums. From these locations, our satellites offer services in the established regions historically using the most satellite capacity, as well as the higher growth oceanic regions, supporting mobility services, and emerging regions, where approximately 74% of our capacity is currently focused.
We believe our global scale, high-performing satellite network, leadership position and valuable customer relationships enable us to benefit from growing demand for reliable broadband connectivity, resulting from trends such as:
•Global distribution of television entertainment and news programming to fixed and mobile devices;
•Completion and extension of international, national and regional data networks, fixed and wireless, notably in emerging and developed regions, and the upgrade of those networks to 3G/4G/5G as content is increasingly consumed on mobile devices;
•Universal access to broadband connectivity through fixed and mobile networks for consumers, corporations, government and other organizations;
•Increasing deployment of in-flight and on-board broadband access for consumer and business applications in the commercial, aviation and maritime sectors;
•Requirements for cost-efficient space-based network solutions for fixed and mobile government and military applications; and
•Global demand for services which enable connected devices, such as machine-to-machine communications and the Internet of Things (“IoT”), particularly with respect to connected car applications.
We believe that we have the largest, most reliable and most technologically advanced commercial communications network in the world. Our global communications system featured a fleet of 52 geosynchronous satellites as of December 31, 2020, covering more than 99% of the world’s populated regions. Our satellites primarily provide services in the C- and Ku-band frequencies, which form the largest part of the FSS sector.
Our next generation fleet of high-throughput satellites (“HTS”) and SDS is designed to reduce cost of service by increasing the flexibility of our service delivery, while optimizing performance and efficiency to the user. With these new assets, we offer existing and prospective commercial customers end-to-end service solutions including broadband connectivity that allow them to innovate, in turn transforming their businesses and expanding the territories and applications that they can profitably serve. Our new fleet is designed to commercial-grade standards. This allows us to offer committed information rates for our service provider customers and guarantee quality of service for direct end-users, as compared to satellite networks designed primarily to provide consumer “best effort”-grade services.
Our satellite capacity is complemented by our IntelsatOne terrestrial network and a growing suite of managed services optimized to the requirements of attractive vertical applications, including the enterprise, maritime and commercial and government aeronautical sectors. Recently we introduced fully-managed services under the Intelsat Flex brand for enterprise and commercial and government mobility applications. Our managed services combine satellite services with network management, access to our terrestrial network comprised of leased fiber optic cable, access to Internet points of presence (“PoPs”), as well as multiplexed video and data platforms. Our satellite-based networking solutions offer distinct technical and economic benefits to our target customers and provide a number of advantages over terrestrial communications systems, including the following:
•Fast, scalable and secure infrastructure deployments;
•Superior end-to-end network availability as compared to the availability of terrestrial networks, due to fewer potential points of failure;
•Highly reliable bandwidth and consistent application performance, as satellite beams provide near ubiquitous coverage across our service regions;
•Ability to extend beyond terrestrial network end points or provide an alternative path to terrestrial infrastructure;
•Efficient content distribution through the ability to broadcast high quality signals from a single location to many locations simultaneously;
•Maximizing potential distribution of television programming, video neighborhoods, or capacity at orbital locations with a large number of consumer dishes or cable headend dishes pointed to them; and
•Rapidly deployable communications infrastructure for disaster recovery.
We believe that our hybrid satellite-terrestrial network, combined with the world’s largest collection of FSS spectrum rights, is a unique and valuable asset that provides a competitive advantage over our peers.
Our network architecture is flexible and, coupled with our global scale, provides strong capital and operating efficiency. In certain circumstances we are able to re-deploy capacity, moving satellites or repositioning beams to capture demand. Demonstrating our ongoing focus on operational efficiency, we pioneered the first successful launch of a mission extension vehicle, extending the useful life of our Intelsat 901 satellite by five years. Our technology has utility across a number of dimensions with minimal customization to address diverse applications driving our capital efficiency.
We have a reputation for operational and engineering excellence, built on our experience of over 50 years in the communications sector. Our network delivered 99.998% network availability to our customers on our operational satellites in 2020. We operate our global network from a fully-integrated, centralized satellite operations facility, with regional sales and marketing offices located close to our customers. The operational flexibility of our network is an important element of our differentiation and our ability to compete effectively.
As of December 31, 2020, our contracted backlog, which is our expected future revenue under existing customer contracts, was approximately $6.1 billion, roughly three and a quarter times our 2020 annual revenue. For the year ended December 31, 2020, we
generated revenue of $1.9 billion and net loss attributable to Intelsat S.A. of $911.7 million. Our Adjusted EBITDA, which consists of EBITDA as adjusted to exclude or include certain unusual items, certain other operating expense items and certain other adjustments, was $1.3 billion, or 67% of revenue, for the year ended December 31, 2020.
In 2020, our financial results reflected the adverse economic impact of the COVID-19 pandemic, as well as lower volume of services due to non-renewals of certain contracts. The effect of lower prices in 2020 was muted as compared to prior years. Overall, we believe we benefit from a number of characteristics that allow us to effectively manage our business despite these competitive and geo-economic pressures:
•Significant long-term contracted backlog, providing a foundation for predictable revenue streams;
•Deployment of our next generation HTS and SDS platforms that were designed to support new services, representing $4.1 billion of potential incremental growth by 2025 from expanded enterprise, wireless infrastructure, mobility, and government applications;
•High operating leverage, which has allowed us to generate strong Adjusted EBITDA margins the past three years;
•Acquisition of the leading provider of IFC services, positioning us as a market leader in the fastest growing segment of satellite mobility; and
•A stable, efficient and sustainable tax profile for our global business.
We believe that our leadership position in our attractive sector, global scale, efficient operating and financial profile, diversified customer sets and sizeable contracted backlog, together with the growing worldwide demand for reliable broadband connectivity everywhere at all times, provide us with a platform for long-term success.
Our Sector
Satellite services are an integral and growing part of the global communications infrastructure. Through unique capabilities, such as the ability to quickly and effectively blanket service regions, offer point-to-multipoint distribution and provide a flexible architecture, satellite services complement, and for certain applications are preferable to, terrestrial telecommunications services, including fiber and wireless technologies. The FSS sector, excluding all consumer broadband, is expected to generate revenues of approximately $10.7 billion in 2021, and transponder service revenue is expected to grow by a compound annual growth rate (“CAGR”) of 2.3% from 2020 to 2025 according to a study issued in 2020 by Northern Sky Research (“NSR”), a leading international market research and consulting firm specializing in satellite and wireless technology and applications.
In recent years, the addressable market for FSS has expanded to include mobile applications because of satellite’s ability to provide the broadband access required by high bandwidth mobile platforms, such as for consumer broadband services on commercial ships and aircraft, as well as military mobility applications, including unmanned aerial vehicles.
Satellite services provide secure bandwidth capacity ideal for global in-theater communications since military operations often occur in locations without reliable communications infrastructure. According to a study by NSR, global revenue from government and military applications is expected to grow at a CAGR of 9.6% from 2020 to 2025.
Our sector is recognized for having favorable operating characteristics, including long-term contracts, high renewal rates and strong cash flows. The fundamentals of the sector are attractive, given the global need for connectivity everywhere and explosion of global content. The expected growth in demand for satellite-based solutions, combined with the high operating margins which are characteristic of the sector, provides a resilient business model.
There is a finite number of geostationary orbital slots in which FSS satellites can be located, and many orbital locations are already occupied by operational satellites pursuant to complex regulatory processes involving many international and national governmental bodies. These satellites typically are operated under coordination agreements designed to avoid interference with other operators’ satellites. See—Regulation below for a more detailed discussion of regulatory processes relating to the operation of satellites.
A resurgence of interest in low earth orbit (“LEO”) and mid-earth orbit constellations is resulting in the potential for new satellite-based solutions that will complement and, in some cases, compete with our services. We believe that the ability of our geostationary orbit (“GEO”) satellites to offer highly efficient point-to-multipoint services, and to concentrate throughput over areas of highest demand, provides us with competitive benefits that will be sustained even as new services come to market.
Today, there are only four FSS operators, including us, providing global services, which is important as multinationals and governments seek a turnkey solution for global connectivity. In addition, there are a number of operators with fewer satellites that provide regional and/or national services. We currently hold the largest number of rights to geostationary orbital slots in the most valuable C- and Ku-band spectrums.
We believe a number of fundamental trends in our sector are creating increasing demand for satellite services:
•Connectivity and broadband access are essential elements of infrastructure supporting the rapid economic growth of developing nations. Globally dispersed organizations and regional businesses often turn to satellite-based infrastructure to provide better access, reliability and control of broadband services. Penetration of broadband connectivity in less developed regions has been growing rapidly and is expected to continue. Over the past 10 years, broadband penetration including satellite connectivity in East Asia & the Pacific grew at a 12% CAGR, in Latin America & the Caribbean grew at a 10% CAGR, in the Middle East & North Africa grew at an 18% CAGR, and in Sub-Saharan Africa grew at a 17% CAGR, according to the World Bank.
•Wireless infrastructure in the global race to 5G represents a significant opportunity for satellite technology. Wireless telecommunications companies often use satellite-based solutions to extend networks into areas where geographic or low population density makes it economically unfeasible to deploy other technology. Further deployments of wireless telecom infrastructure and the migration from 2G to 3G, 4G and 5G networks, which adds content and data to basic voice communications, create incremental demand for satellite bandwidth. We believe that the emergence of 5G networks will result in a new growth vector for satellite connectivity. Satellite technology is uniquely responsive to the 5G requirement of ubiquitous coverage and fast deployments. We believe satellite systems will complement terrestrial networks and enable reliable and consistent global 5G user experience in a cost-effective manner. In 2018, 3GPP, the telecommunications standard development organization (“3GPP”), approved work item studies to incorporate satellite systems in 5G standards to demonstrate key satellite attributes, including broadcasting, multicasting, and ubiquity and global mobile connectivity. According to the Global System for Mobile Communications Association, 4G and 5G mobile connections are expected to increase from 52% to 76% of total connections for the period from 2019 to 2025.
•Mobility applications, such as maritime communications and aeronautical broadband services for commercial and government applications, are fueling demand for mobile connectivity. Commercial applications, such as broadband services for consumer flights and cruise ships, as well as broadband requirements from the maritime commercial shipping and oil and gas sectors, provide increased demand for satellite-based services. We entered the IFC market in December 2020 with our Gogo CA business, providing IFC services directly to commercial airlines and their passengers.
•The increasing demand for global broadband connectivity on commercial airlines is a key driver of satellite connectivity and services. 69% of North American aircraft provide IFC and IFE services, while about 17% of European, African, Asian-Pacific and South American aircraft were connected in 2020, according to Valour Consultancy and Boeing. Global satellite services revenue related to demand for broadband mobility applications from land, aeronautical and maritime customers is expected to grow at a CAGR of 14% for the period from 2020 to 2025, according to NSR.
•Globalization of economic activities is increasing the geographic expansion of corporations and the communications networks that support them, while creating new audiences for content. Globalization also increases the communications requirements for governments supporting embassy and military applications.
•The emergence of new content consumers resulting from economic growth in developing regions leads to increased demand for free-to-air and pay-TV content. According to NSR, the highest expected growth in television channels is from developing regions, including the Middle East and North Africa at 1.6%, Sub-Saharan Africa at 3.9%, and Asia-Pacific at 1.9% for the period from 2020 to 2025, respectively.
•Proliferation of formats and new sources of entertainment content results in increased bandwidth requirements, as content owners seek to maximize distribution to multiple viewing audiences across multiple technologies. High-definition (“HD”) television (“HDTV”), the introduction of ultra-high definition (“UHD”) television, Internet distribution of traditional television programming known as “Over the Top” or “OTT”, and video to mobile devices are all examples of the expanding format and distribution requirements of media programmers, the implementation of which varies greatly from developed to emerging regions. In its 2020 study, NSR forecasted that the number of standard definition (“SD”), HD, and UHD television channels distributed worldwide for cable, broadcast and direct-to-home (“DTH”) is expected to grow at a CAGR of 1% for the period from 2020 to 2025.
•Connected devices and vehicles, such as those contemplated by machine-to-machine communications, the IoT and other future technology trends, will require ubiquitous coverage that might be best provided by satellite technology for certain applications in certain regions, and also for applications where ubiquitous, global access is required, such as enabling software downloads for connected and autonomous cars marketed by the automotive sector or for the operations of connected vehicles, such as in agriculture applications. This represents an important potential source of longer-term demand.
In total, GEO FSS transponder service revenue (excluding consumer broadband) is expected to grow at a CAGR of 2.3% for the period from 2020 to 2025, according to NSR.
Our Customer Sets and Growing Applications
We focus on business-to-business services that indirectly enable enterprise, government and consumer applications through our customers. Our customer contracts offer four different service types: transponder services, managed services, channel services and mobile satellite services and other. See Item 7—Management's Discussion and Analysis—Revenue for further discussion of our service types. Characteristics of our customer sets are summarized below:
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Customer Set
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Representative Customers
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Year
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Annual
Revenue
(1) (2)
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% of 2020 Total Revenue
(2)
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% of 2020
Total
Backlog
(1) (2)
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Backlog to 2020 Revenue Multiple
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Media
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AT&T, MultiChoice, The Walt Disney Company, Discovery Communications, 21st Century Fox, Time Warner
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2018
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$
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938
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2019
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883
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2020
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813
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42
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%
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59
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%
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4.5x
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Network Services
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Marlink, KVH Industries, Speedcast, Global Eagle, Verizon, Hughes, Orange, Panasonic Corp, GCI Communications
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2018
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798
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2019
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770
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2020
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677
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35
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%
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26
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%
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2.4x
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Government
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Australian Defence Force, U.S. Department of Defense, U.S. Department of State, Leonardo
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2018
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392
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2019
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378
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2020
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393
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21
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%
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12
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%
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1.8x
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(1)Dollars in millions; backlog as of December 31, 2020.
(2)Does not include satellite-related services and other.
We provide satellite capacity and related communications services for the transmission of video, data and voice signals. Our customer contracts cover on- and off-network capacity with primarily three different service types:
On-Network:
•Transponder services
•Managed services
Off-Network:
•Transponder services
•Mobile satellite services and other
We also perform satellite-related consulting services and technical services for various third parties, such as operating satellites for other satellite owners.
Media
Media customers are our largest customer set and accounted for 42% of our revenue for the year ended December 31, 2020 and $3.6 billion of our contracted backlog as of December 31, 2020. Our business generated from the media sector is generally characterized by non-cancellable, long-term contracts with terms of up to 16 years with premier customers, including national and global broadcasters, content providers and distributors, television programmers and DTH platform operators.
We are the world’s largest provider of satellite capacity for media services, according to Euroconsult, with a 19% global share. We have delivered television programming to the world since the launch of our first satellite, Early Bird, in 1965. We provide satellite capacity for the transmission of entertainment, news, sports and educational programming for over 300 broadcasters, content providers and DTH platform operators worldwide. Our leadership and reputation have created well-established relationships with our media customers, and in some cases, we have distributed their content on our satellites for over 30 years.
Broadcasters, content providers and television programmers seek efficient distribution of their content to make it easily obtainable by affiliates, cable operators and DTH platforms; satellites’ point-to-multipoint capability is difficult to replicate via terrestrial alternatives. Our strong cable distribution neighborhoods offer media customers high penetration of regional and national audiences.
Broadcasters, content providers and television programmers also select us because our global capabilities enable the distribution or retrieval of content to or from virtually any point on earth. For instance, we regularly provide fully integrated global distribution networks for content providers that need to distribute their products across multiple continents. DTH platform operators use our services because of our attractive orbital locations and because the scale and flexibility of our fleet can improve speed to market and lower their operating risk, as we have multiple satellites serving every region.
We believe that we enjoy a strong reputation for delivering the high network reliability required to serve the demanding media sector. As our media customers invest in nascent distribution platforms and adopt new business models, ensuring the reliability and monetization of cable head-end and DTH distribution is paramount; our customers increasingly look to us to provide managed services in these areas.
Our fully integrated satellite, fiber and teleport facilities provide enhanced quality control for programmers. In addition to premium satellite services, we offer managed, value-added services under our IntelsatOne brand that include managed fiber services, digital encoding of video channels and up-linking and down-linking services to and from our satellites and teleport facilities. Our IntelsatOne bundled services address programmers’ interests in delivering content to multiple distribution channels, such as television and Internet, and their needs for launching programs to new regions in a cost-efficient manner.
Highlights of our media business include the following:
•Our fleet hosts over 35 premium video neighborhoods, offering programmers superior audience penetration, with ten serving North America, nine serving Latin America, nine serving Africa and the Middle East, six serving Asia and five serving Europe;
•We are a leading provider of services used in global content distribution to media customers, according to Euroconsult. Our top 10 video distribution customers buy services on our network, on average, across three geographic regions, demonstrating the value provided by the global reach of our network;
•We believe that we are the leading provider of satellite service capacity for the distribution of cable television programming in North America, with thousands of cable headends pointed to our satellites. Our Galaxy 13 satellite provided the first HD neighborhood in North America, and today, our Galaxy fleet distributes over 390 HD channels; globally, we distribute over 6,000 TV and radio channels, including approximately 1,500 HD channels, reaching over two billion people worldwide;
•We are a leading provider of satellite services for DTH providers, supporting 30 DTH platforms around the world with over 70 million subscribers, including Sky Brazil in Brazil, MultiChoice and Sentech in Africa, and Canal+ in multiple regions;
•We are a leading provider of services used in video contribution managed occasional use services, supporting coverage of major events for news and sports organizations, according to Euroconsult. For instance, we have carried programming on a global basis for every Olympiad since 1968; and
•In its 2020 study, NSR forecasted that the number of SD, HD, and UHD television channels distributed worldwide for cable, broadcast and DTH is expected to grow at a CAGR of 1% for the period from 2020 to 2025. The high growth in television channels is from developing regions: the Middle East and North Africa at 1.6%, Sub-Saharan Africa at 3.9%, and Asia-Pacific at 1.9% for the period from 2020 to 2025, respectively.
In 2020, non-renewals and volume reductions, coupled with a significant decline in occasional use video services as a result of COVID-19, caused our media business to underperform our expectations for the year. In 2021, we expect continuing pressure on our media business. Broadly, our global media customers increasingly seek to economize due to the need to support expanding infrastructure requirements and pressure on their distribution businesses related to expansion of OTT service platforms. We expect customers to use compression technologies, eliminate the distribution of SD feeds, and reduce commitments for contribution and ad hoc requirements, which will result in reduced volume for our business. In the future, we expect some incremental demand for capacity to support the new 4K format, also known as UHD, which could offset some of the reductions in demand related to compression technologies.
Network Services
Network services is our second largest customer set and accounted for 35% of our revenue for the year ended December 31, 2020 and $1.6 billion of our contracted backlog as of December 31, 2020. Our business generated from the network services sector is generally characterized by non-cancellable contracts, up to five years in length, with many of the world’s leading communications providers. This includes fixed and wireless telecommunications companies, such as global carriers and regional and national providers in emerging regions, corporate network service providers, such as very-small-aperture terminal (“VSAT”) services providers to vertical markets including banks, value-added services providers, such as those serving the aeronautical and maritime industries, as well as multinational corporations and other organizations operating globally.
According to Euroconsult, we are one of the world’s largest providers of satellite capacity for network services, with a 27% global share of regular FSS capacity. Our satellite services, comprised of satellite capacity, and terrestrial network comprised of leased fiber, teleports and data networking platforms, enable the transmission of video and data to and from virtually any point on the surface of the earth. Basic communications and broadband connectivity in developed and emerging regions are meaningful contributors to economic growth. We provide an essential element of the communications infrastructure, enabling the rapid expansion of wireless services that support businesses, communities and governments in many emerging regions.
Our network services offerings are an essential component of our customers’ services, providing backbone infrastructure, expanded service areas and connectivity where reliability or geography is a challenge. We believe that we are a preferred provider because of our global service capability and our expertise in delivering services with enterprise-grade network availability and efficient network control.
Furthermore, as mobile communications have become essential to global networking and Internet use, our satellite solutions are being used for mobility applications. This includes services ranging from maritime enterprise VSAT data services to consumer broadband connectivity for cruise ships. In addition to maritime applications, Intelsat’s satellite solutions are used by service providers to deliver broadband connectivity for IFC and IFE services for the aeronautical industry. In the future, these solutions will be augmented by capacity on our next generation SDS platform, offering greater agility, flexibility and performance to our customers. Further, through our Gogo CA business, we have rights to offer air-to-ground (“ATG”) and satellite connectivity, as well as entertainment services, directly to commercial aircraft flying routes within North America operated by Aeromexico, Air Canada, Air Canada Rouge, Alaska Airlines, American Airlines, Delta Air Lines, and United Airlines, and satellite and connectivity and entertainment services directly to commercial aircraft flying routes outside of North America operated by Aeromexico, Air Canada, Air Canada Rouge, Air France, British Airways, Cathay Dragon, Cathay Pacific, Delta Air Lines, GOL, Iberia, Japan Air Lines, JTA, KLM, LATAM Airlines, LEVEL and Virgin Atlantic Airways, in each case pursuant to long-term agreements.
Our managed services provide regional shared data networking platforms at our teleports that are connected to 20 of our satellites, with network transmissions managed by our operations team. In 2018, we introduced new platform as a service (PaaS) cloud-based offerings under the AgileCore brand, combining our satellite services with shared data platforms and our fiber network. As a result, our customers can quickly establish highly reliable services across multiple regions, while operating them on a centralized basis. Our satellite-based solutions allow customers to rapidly expand their service territories, flexibly customize the speed and capabilities for their existing networks and efficiently address new customer and end-user requirements. Since 2017, we have offered fully-managed services, called Flex, which address commercial and government aeronautical, maritime and land mobile applications.
Our leading position in network services has been pressured by additional capacity from other satellite operators and improved access to fiber links, changing the competitive environment in certain regions and resulting in lower prices. Our Intelsat Epic satellites provide differentiated inventory and help offset these recent trends, offering connectivity solutions that target wireless infrastructure, mobility and enterprise applications. In 2018, we successfully added new distribution channels in the maritime, business jet and wireless infrastructure verticals. In 2020, we committed to investments in next generation SDS and ground infrastructure to support capacity and future applications needed to expand our Gogo CA business as more passengers and airlines will likely put greater emphasis on being connected in-flight. As the volume of services sold on our HTS and SDS platforms increases over time, we believe that the level of business activity in this sector will stabilize.
Highlights of our network services business include the following:
•Our largest network services customer type is enterprise networking. We are one of the world’s largest providers of satellite capacity for satellite-based private data networks, including VSAT networks, according to Euroconsult;
•The fastest growing customer type in our network services business is mobility services for the aeronautical and maritime sectors;
•The Gogo Transaction positions us as the largest provider of IFC services directly to our airline customers. FSS revenue growth related to capacity demand for broadband aeronautical services is expected to grow from approximately $260 million to just under $1 billion annually for the period from 2020 to 2025 at a CAGR of 29%, according to Euroconsult. In addition, Euroconsult forecasted the growth in FSS aeronautical terminals (excluding mobile satellite services (“MSS”) and ATG technology) at a CAGR of 13% for the period from 2020 to 2025;
•We are the leader in the provision of FSS bandwidth for maritime broadband connectivity. 12% of the Company’s revenue for the year ended December 31, 2020 was derived from commercial mobility services, the largest segment of which was maritime. The number of FSS VSATs related to capacity demand for maritime broadband services (excluding MSS and non-GEO satellite systems) is expected to grow at a CAGR of 13% for the period from 2020 to 2025, according to Euroconsult. Of the world’s largest cruise vessels, Intelsat’s services are incorporated in the broadband infrastructure for a majority of ships, in substantially all cases as the exclusive or primary source of satellite services;
•Infrastructure for wireless operator services represents our third largest network services customer type. We believe we are a leading provider of satellite capacity for cellular backhaul applications in emerging regions, connecting cellular towers to the global telecommunications network, a global sector expected to generate over $1.2 billion in revenue in 2021, according to NSR. Over 80 of our customers use our satellite-based backhaul services as a core component of their network infrastructure due to unreliable or non-existent terrestrial infrastructure. Our cellular backhaul customers include six of the top ten mobile groups worldwide, which serve over a fifth of the world’s subscribers, excluding China;
•Over 100 value-added network operators use our IntelsatOne broadband hybrid infrastructure to deliver their regional and global services. Applications for these services include corporate networks for multinationals, Internet access and broadband
for maritime and commercial aeronautical applications. C-, Ku- and Ka-band and HTS revenue from capacity demand for mobility applications is expected to grow at a CAGR of 13.9% for the period from 2020 to 2025, according to NSR; and
•The fixed enterprise VSAT sector (excluding all non-GEO HTS bandwidth) is expected to generate capacity revenues of approximately $3.1 billion in 2021, and capacity revenues are expected to grow at a CAGR of 7% for the period from 2020 to 2025, according to NSR.
Government
We are the leading provider of commercial satellite services to the government sector, according to NSR, with a 24% share of military and government use of commercial satellite capacity worldwide. With more than 50 years of experience serving this customer set, we have built a reputation as a trusted partner for the provision of highly customized, secure and mission critical satellite-based solutions. The government sector accounted for 21% of our revenue for the year ended December 31, 2020 and $707 million of our contracted backlog as of December 31, 2020.
Our satellite communication services business generated from the U.S. government sector is generally characterized by single year contracts that are cancellable by the customer upon payment of termination for convenience charges, and include annual options to renew for periods of up to four additional years. In addition to communication services, our backlog includes some longer-term services, such as hosted payloads, which are characterized by contracts with originally contracted service periods extending up to the 15-year life of the satellite, cancellable upon payment of termination penalties defined by the respective contracts.
Our customer base includes the U.S. government’s military and civilian agencies, global government militaries, and commercial customers serving the defense sector. We consider each party within the U.S. Department of Defense and other U.S. government agencies that has the ability to initiate a purchase requisition and select a contractor to provide services to be a separate customer, although such party may not be the party that awards us the contract for the services.
We attribute our strength in serving U.S. military and government users to our global infrastructure of satellites, including the high-performance Intelsat Epic fleet, and our IntelsatOne network of teleports and fiber that complement the U.S. government’s own communications networks. Our fleet provides flexible, secure and resilient global network capacity, and critical surge capabilities. Our Intelsat Epic satellites provide high-throughput and performance in critical mission areas, such as (i) airborne intelligence, surveillance and reconnaissance (“ISR”), (ii) maritime command, control, communications, computers, cyber and ISR (Maritime C5ISR), (iii) full-motion HD video from unmanned systems and (iv) U.S. homeland security missions. In some instances, we provide our U.S. government customers managed, end-to-end secure networks, combining our resources in space and on the ground, for fixed and mobile applications.
In responding to certain unique customer requirements, we also procure and integrate satellite services provided by other satellite operators, either to supplement our capacity or to obtain capacity in frequencies not available on our fleet, such as L-band, X-band and other spectrums not available on our network. These off-network services are generally low risk in nature, typically with the terms and conditions of the third-party capacity and services we procure matched to contractual commitments from our customer. We are an attractive partner to the government sector because of our ability to leverage not only our assets but also other space-based solutions, providing a single contracting source for multiple, integrated technologies.
Highlights of our government business include the following:
•Our government business is fully engaged in the Intelsat managed services strategy, simplifying the use of high-throughput services to deliver fully integrated solutions to its customers. In 2019, we introduced FlexGround, a global end-to-end managed service providing cost-effective, high-performance connectivity for small land mobility applications, including airline checkable manpack terminals. This service leverages the Intelsat Epic HTS network, which has high-powered spot beams, enabling high data rate services to small terminals. Operating in the Ku-band, these terminals are designed to be set up and connected in minutes by non-technical users operating in remote environments, enabling communications across a wide spectrum of scenarios;
•The reliability and scale of our fleet and planned launches of new and replacement satellites allow us to address changing demand for satellite coverage and to provide mission-critical communications capabilities. The investment that we are making in next-generation software-defined networks (“SDNs”), both in space and on the ground, will offer a new level of flexibility and capability to service the most demanding customers. We are providing significant on-network capacity on our newest satellites, as well as off-network capacity to satisfy additional demand for our services in regions where our capacity is limited, with the express intent of bringing that capacity back on-network when the new fleet is available;
•The U.S. government, specifically the U.S. Department of Defense, continues to push to leverage commercial satellite communications, coupled with military satellite communications, in providing a total integrated satellite communications solution for the warfighter. The U.S. military continues to be one of the largest users of commercial satellites for government and military applications on a global basis. In 2020, we served approximately 80 customers consisting of U.S. government customers, resellers to U.S. government customers or integrators; and
•Global revenue from FSS used for government and military applications is expected to grow at a CAGR of 9.6% for the period from 2020 to 2025, according to NSR.
Overall, business activity in this customer set reflects the current tempo of our end-customers’ operations and the budgetary constraints of the U.S. government; visibility into the U.S. government’s planned contract awards remains low and the pace of new business and subsequent awards remains flat.
Over the mid-term, we believe our reputation as a provider of secure solutions, our global fleet including investments in our next generation SDN platform and affiliated managed services, our well-established customer relationships, our ability to provide turnkey services and our demonstrated willingness to reposition or procure third-party capacity to support specific requirements position us to successfully compete for commercial satellite solutions for bandwidth-intensive military and civilian applications. We expect our government business to benefit over time from our agile satellite fleet serving the increasing demands for mobility services from the U.S. government for aeronautical and ground mobile requirements.
Our Diverse Business
Our revenue and backlog diversity spans multiple customer sets and applications, as discussed above, as well as geographic regions and satellites. We believe our diversity allows us to recognize trends to capture new growth opportunities, and gain experience that can be transferred to customers in different regions. For further details regarding geographic distribution of our revenue, see Item 8, Note 5—Revenue to our consolidated financial statements.
We believe we are the sector leader by transponder share in three of the geographic regions covered by our network. We are generally ranked first or second in the regions identified by industry analysts as those that either purchase the most satellite capacity or are regions with high growth prospects, such as North America and Latin America.
The scale of our fleet can also reduce the financial impact of satellite failures and protect against service interruption. No single satellite generated more than 7% of our revenue and no single customer accounted for more than 15% of our revenue for the year ended December 31, 2020.
The following charts show the geographic diversity of our contracted backlog as of December 31, 2020 by service sector and region, based upon the billing address of the customer.
The majority of our on-network revenue aligns to emerging regions, based upon the position of our satellites and beams. The following chart shows the breakdown of our on-network revenue by the region in which the service was delivered as of December 31, 2020.
Gogo CA — Commercial Aviation
On December 1, 2020, Intelsat completed its purchase of Gogo’s commercial aviation business for $400.0 million in cash, subject to customary adjustments. The Gogo Transaction further propels Intelsat’s efforts in the growing commercial IFC market, pairing our high-capacity global satellite and ground network with Gogo CA’s installed base of more than 3,000 commercial aircraft to redefine the IFC experience. Gogo CA’s mission is to provide ground-like connectivity to every device on every flight around the globe enabling superior passenger experiences. To accomplish our mission, we utilize dedicated satellite and ATG networks, engineer, install and maintain in-flight systems of propriety hardware and software, and deliver customizable connectivity, wireless entertainment services, and global support capabilities to our aviation partners. Our leading global market share supports our continued investment in ongoing research and development and the global operating capabilities required to support our aviation partners’ needs. Our technology roadmap includes plans for continued rapid improvement in bandwidth speeds and other performance metrics of our in-flight systems.
We are the leading global commercial aviation provider of IFC and IFE services, with our equipment installed and services provided on approximately 3,000 commercial aircraft as of December 31, 2020. Our next generation 2Ku global satellite system (“2Ku”) has been installed on more than 1,495 commercial aircraft, with approximately 475 additional 2Ku commercial aircraft under existing contracts and awards not yet under contract as of December 31, 2020. The 2Ku system is capable of delivering peak speeds of 200 Mbps to the aircraft. We also anticipate using Gogo’s 5G ATG network (“Gogo 5G”), expected to be available in 2022, to improve the passenger experience by providing lower latency and higher throughput than the current ATG network on commercial regional jets and smaller mainline jets operating within the continental United States and Canada. Gogo 5G will support licensed, shared and unlicensed spectrum and high, low and middle bands and will allow us to take advantage of new advances in technology as they are developed. We will continue to provide service over the current ATG network in North America to provide redundancy to the Gogo 5G network when needed.
Our Strategy: Transforming Our Business and Our Sector
We are transforming our business and sector, investing in and deploying innovative new technologies and platforms that will change the types of applications that we can serve and increase our share of the global demand for broadband connectivity everywhere—for all communities and for all devices.
Our strategy is built around five competitive advantages that support our ability to reach our goals:
•Our operating scale, with over 50 satellites owned and managed, coupled with our long history of experience introducing and managing technology globally, is essential given that the fastest growing applications, such as mobility and upcoming 5G deployments, require ubiquitous, consistent network performance;
•Our global presence, including relationships with governments and operators around the world and service delivery in approximately 200 countries and territories illustrating our global reach, is important to new opportunities, such as connected and autonomous vehicles, machine-to-machine, land mobility and government applications, where service providers will look for global access. We believe the ability to serve these and other applications on a global basis creates new satellite-based communication solutions with multi-billion dollar revenue potential;
•Our innovative technology, especially our high-throughput fleet already in-orbit, and investments in new software-defined space assets and virtualization of our ground platform, balances our focus on flexibly deploying capacity where it is needed and continually advancing technology, allowing us to provide our customers first-to-market advantage and a transformational customer experience. In addition, we believe that completing targeted investments and partnerships in differentiated space and ground infrastructure to develop a standards-based ecosystem will provide a seamless interface with the broader telecommunications ecosystem;
•Our portfolio of spectrum rights provides unmatched flexibility and agility as we look at new opportunities; and
•Our customer reach, including our leading position in the commercial aviation market. We serve a very high-quality customer base around the world and have an extensive and collaborative history of working successfully with those partners. With the acquisition of Gogo CA, we have moved to directly serve the world’s leading airlines and are vertically integrating Intelsat’s global satellite network with the Gogo CA business that is built upon providing the leading global IFC experience through our leading 2Ku system and utilization of ATG systems, backed by strong mobility network management capability and leading experience in meeting the rigorous demands of the global aviation market. Subsequent to the integration of Gogo CA, we intend to take our learned experiences and continue to invest in managed services capabilities that bring us closer to our customers.
Our strategy is to drive revenue growth with the following actions:
•Stabilize our core business by supporting our video neighborhoods, employing a disciplined yield management approach across our business units, maintaining strong customer relationships and successfully executing on our business plan to deliver strong operational results;
•Scale our differentiated managed service offerings in targeted growth verticals in broadband, mobility, media and government, leveraging the global footprint, higher performance and better economics of our next generation HTS and SDS platforms and the flexibility of our innovative terrestrial network to improve the quality and simplicity of the end-user experience;
•Develop and maintain strong distribution channels to our primary customer sets, including through partnerships and investments, that will improve network reach and service capabilities and enhance our vertical reach to the mobility sector;
•Utilize third-party capacity to cultivate relationships with prospective customers and extend relationships with existing customers in areas where we are capacity constrained or have limited service offerings, with the goal of bringing that capacity back on network when available;
•Seek partnerships and investments for vertical expansion in the growing mobility sector, for example, through the recent Gogo Transaction, and in adjacent space-based businesses to position for longer-term growth; and
•In our Gogo CA business, we intend to seek revenue growth through the following actions, among other things:
•Increase the number of Gogo CA-connected commercial aircraft from the approximately 3,000 commercial aircraft to which we provided services as of December 31, 2020;
•Increase the take rates for passenger connectivity, the adoption of additional wireless entertainment services and the use of connected aircraft-related operational applications; and
•Leverage our installation experience and growing portfolio of supplemental type certificates (“STCs”) to reduce our investment per aircraft.
We believe that developing differentiated managed services and investing in related software- and standards-based technology will allow us to improve our position within the broader telecommunications landscape, unlocking opportunities that are essential to providing global broadband connectivity.
Our new services and technologies will also open new sectors that are much larger, and growing much faster, than the sectors we support today by, for example:
•Providing network infrastructure for wireless in developing regions;
•Providing signal ubiquity in support of 5G services globally. By integrating 5G into our core ground network, we will provide a seamless interconnectivity experience with third-party 5G networks;
•Providing flexible broadband services for enterprise networks and for commercial and government-related aeronautical, maritime and other mobile applications, and using our high-throughput platform and global footprint to provide differentiated services;
•Optimizing content distribution networks to support cloud-based media applications, UHD, OTT programming and other multiscreen viewing applications; and
•Providing ubiquitous broadband for global deployment of connected devices, including connected and autonomous vehicles and the continuing formation of the IoT.
Our strategy with respect to capital investment and spectrum is expected to lead to longer-term outcomes, achieving the transformation of our business as we take the following actions:
•Lower overall capital intensity and improve cost effectiveness through innovation with an emphasis on software-defined infrastructure and encourage a standards-based ecosystem built on widely adopted technologies, including the 3GPP standards. We will enhance our space and terrestrial infrastructure with platforms that are software-defined and cloud-based, which are less expensive to manufacture, resulting in faster deployments and mission flexibility. We will leverage third-party capacity to serve customers where it is capital efficient and cost-effective to do so, with the long-term goal of bringing that capacity back on network when available; and
•Maximize the value of our spectrum rights and leverage our sizeable portfolio of spectrum rights in the C-, Ku- and Ka-bands, which provides the foundation of our ability to provide communications services over 99% of the Earth’s populated regions. We will continue our ongoing activities to clear a portion of the C-band spectrum in North America pursuant to the FCC’s Final Order on the topic and participate in an accelerated clearing process, in order to, among other things, free up C-band spectrum in the U.S. to fuel the adoption of 5G, while also protecting and maintaining the essential services we provide in the band today.
In advancing our spectrum rights strategy, we worked from 2017 with other satellite operators and collaborated with customer groups, associations and other stakeholders to propose a market-based solution to a Notice of Proposed Rule Making (“NPRM”) issued by the FCC. The NPRM explored clearing spectrum currently licensed to satellite operators in order to accommodate the deployment of 5G wireless services in the United States. The proposal put forth by Intelsat and certain other satellite operators supported the FCC’s stated goals of clearing a large portion of the C-band spectrum quickly, while also protecting incumbent services. On November 18, 2019, the FCC announced a decision to pursue a public auction of the C-band spectrum currently licensed to Intelsat and other satellite operators, a change from the private market solution for which Intelsat had been advocating over the prior two years.
On March 3, 2020, the FCC issued its final order in the C-band proceeding. The FCC Final Order determined that acceleration incentive payments totaling $9.7 billion would be made to certain C-band satellite operators, subject to the achievement of certain milestones, of which Intelsat would receive $4.9 billion payable in two tranches. To qualify to receive the incentive payments in the accelerated clearing process, C-band satellite operators were required to file a written commitment to opt in by May 29, 2020. The FCC Final Order also outlined a cost reimbursement framework that would apply to the various stakeholders in the proceeding, as well as technical specifications and other elements.
On May 26, 2020, in advance of the FCC’s filing deadline, Intelsat announced its decision to opt into the FCC accelerated C-band clearing plan, and on August 14, 2020, the Company filed its final C-band transition plan with the FCC. This comprehensive plan was submitted after more than two years of coordinated outreach with customers, vendors and industry stakeholders to ensure that Intelsat is well positioned to achieve the milestones outlined in the FCC Final Order.
Competition
We compete in the communications market for the provision of video, data and voice connectivity worldwide. Communications services are provided using various communications technologies, including satellite networks, which provide services as a substitute for, or as a complement to, the capabilities of terrestrial networks. We also face competition from suppliers of terrestrial communications capacity.
We operate on a global scale. Our competition includes national, regional and global providers of traditional and high-throughput FSS. We also compete with providers of MSS for broadband services delivered for aeronautical and maritime applications.
In addition, we compete with providers of terrestrial fiber optic cable capacity on certain routes and networks, principally for point-to-point services. The primary use of fiber optic cable is carrying high-volume communications traffic from point-to-point, and fiber capacity is available at substantially lower prices than satellite capacity once operational. Consequently, the growth in fiber optic cable capacity has led voice, data and video contribution customers that require service between major city hubs to migrate from satellite to fiber optic cable.
In recent years, increased availability of fiber in metropolitan regions of developing countries, and the oversupply of satellite services in certain regions, have resulted in increased competition in some of the regions we serve. The effect of these two trends has been significant price reductions for both fiber and satellite connectivity, primarily impacting our commercial and government data applications. As a result, Intelsat’s revenues have been reduced as services were terminated by customers moving to fiber alternatives, and also as contracts were renewed at lower prices.
Sales, Marketing and Distribution Channels
We strive to maintain a close working relationship with our customers. Our primary sales and marketing operations are located in the United Kingdom and the United States. In addition, we have established local sales and marketing support offices in the following countries around the world:
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• Australia
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• Kenya
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• Brazil
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• Netherlands
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• China
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• Russia
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• France
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• Senegal
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• Germany
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• Singapore
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• Hong Kong
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• South Africa
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• India
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• Switzerland
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• Israel
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• United Arab Emirates
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• Japan
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By establishing local offices closer to our customers and staffing those offices with experienced personnel, we believe that we are able to provide flexible and responsive service and technical support to our customers. Our sales and marketing organization reflects our corporate focus on our three principal customer sets of network services, media and government. Our sales team includes technical marketing and sales engineering application expertise and a sales approach focused on creating integrated solutions for our customers’ communications requirements.
We use a range of direct and wholesale distribution methods to sell our services, depending upon the region, the vertical application, regulatory requirements and customer application. We will expand our distribution platform as we evolve to a managed-services driven business model that provides turnkey solutions to our customers who require more than just connectivity.
Contracts with Airline Partners
We enter into connectivity agreements with our airline partners under which the airlines commit to have our equipment installed on some or all of the aircraft they operate, and we commit to provide IFC and/or IFE services, and, in some circumstances, CAS, on such aircraft. We currently have definitive agreements to provide service on 20 commercial airlines. We have the exclusive right to provide passenger IFC services on Gogo CA-installed aircraft throughout the term of the agreement in contracts with airline partners. The majority of our contracts with our airline partners have staggered expiration dates occurring on a fleet-by-fleet basis based on installation dates or on a contract basis, depending on the contract. Under our current contracts, the last expiration is expected to occur in 2030 or later, depending on the timing of future installations.
We offer airline partners a variety of business models and work with each airline to tailor the model to meet its needs. Under Gogo CA’s turnkey model for passenger IFC services, Gogo CA typically sets passenger pricing and the airline receives a negotiated revenue share from passenger purchases of the services and pays Gogo CA a monthly fee for network monitoring and management or maintenance services. Under some of our agreements, airlines have adopted or have the option to adopt an airline-directed model, whereby the airline partner has flexibility to determine which of the many end-to-end services it wants Gogo CA to provide, which services it wants to provide itself and how it wishes to price the services provided to passengers.
Depending on the contract, installation and maintenance services may be performed by us and/or the airline. When we provide such services, under some agreements, we include charges for installation and maintenance in our equipment pricing package; in other circumstances, the airline pays us directly for such services. Under certain contracts, we provide equipment credits or other incentives based on the number of aircraft installed with our equipment and the timing of such installations. Our contracts with airline partners set forth specified timelines for the installation or delivery of our airborne equipment, as well as service level commitments, and our failure to meet such timelines or service level commitments generally requires us to pay penalties or liquidated damages to the airlines and in certain circumstances may result in our airline partners being permitted to terminate all or a portion of the contract.
Our Satellite Network
Our global satellite network is currently comprised of 52 satellites as well as ground facilities, including teleports, access to Internet PoPs and leased fiber that support our commercial services and the operation and control of our satellites.
Our customers depend on our global communications satellite network and our operational and engineering leadership. Highlights of our satellite network include:
•Prime orbital locations, reflecting a valuable portfolio of coordinated fixed satellite spectrum rights;
•Highly reliable services, including transponder availability of 99.998% on all operational satellites for the year ended December 31, 2020;
•Flexibility to relocate satellites to other orbital locations as we manage fleet replacement, demand patterns change or in response to new customer requirements;
•Design features and steerable beams on many of our satellites enable us to reconfigure capacity to provide different areas of coverage;
•Resilience, with multiple satellites serving each region, allows for improved restoration alternatives should a satellite anomaly occur; and
•Longevity, leveraging mission extension vehicles, allows us to extend the useful life for certain satellites by up to 5 years.
As we design our new satellites, we work closely with our strategic customers to incorporate technology and service coverage that provide them with a cost-effective platform for their respective requirements.
The table below provides a summary of our satellite fleet as of December 31, 2020, except where noted.
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Satellite
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Manufacturer
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Orbital
Location
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Launch Date
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Estimated End of
Service Life (1)
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Station Kept Satellites
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Intelsat 901
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Maxar(2)
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27.5 °W
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Jun-01
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2025
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Galaxy 3C
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Boeing(3)
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95.1 °W
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Jun-02
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2023
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Galaxy 23(4)
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Maxar
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121.0 °W
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Aug-03
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2023
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Galaxy 13(5)
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Boeing
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127.0 °W
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Oct-03
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2025
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Intelsat 1002(6)
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Airbus
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1.0 °W
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Jun-04
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2021
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Galaxy 28
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Maxar
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89.0 °W
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Jun-05
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2023
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Galaxy 14
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NG(7)
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125.0 °W
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Aug-05
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2021
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Galaxy 15
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NG
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133.0 °W
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Oct-05
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2023
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Galaxy 16
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Maxar
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99.0 °W
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Jun-06
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2027
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Galaxy 17
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Thales(8)
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91.0 °W
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May-07
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2024
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Intelsat 11
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NG
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43.0 °W
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Oct-07
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2022
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Horizons 2(9)
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NG
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84.9 °E
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Dec-07
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2024
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Galaxy 18
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Maxar
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123.0 °W
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May-08
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2028
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Intelsat 25
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Maxar
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31.5 °W
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Jul-08
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2024
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Galaxy 19
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Maxar
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97.0 °W
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Sep-08
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2028
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Intelsat 14
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Maxar
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45.0 °W
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Nov-09
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2027
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Intelsat 15
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NG
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85.2 °E
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Nov-09
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2027
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Intelsat 16
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NG
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76.2 °W
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Feb-10
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2028
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Intelsat 17
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Maxar
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66.0 °E
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Nov-10
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2027
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Intelsat 28(10)
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NG
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32.8 °E
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Apr-11
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2025
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Intelsat 18
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NG
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180.0 °E
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Oct-11
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2028
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Intelsat 22(11)
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Boeing
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72.1 °E
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Mar-12
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2028
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Intelsat 19
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Maxar
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166.0 °E
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Jun-12
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2028
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Intelsat 20
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Maxar
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68.5 °E
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Aug-12
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2030
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Intelsat 21
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Boeing
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58.0 °W
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Aug-12
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2030
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Intelsat 23
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NG
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53.0 °W
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Oct-12
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2030
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Intelsat 30
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Maxar
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95.1 °W
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Oct-14
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2032
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Intelsat 34
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|
Maxar
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|
55.5 °W
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Aug-15
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2033
|
Intelsat 31
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|
Maxar
|
|
95.1 °W
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|
Jun-16
|
|
2034
|
Intelsat 33e
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Boeing
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60.0 °E
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Aug-16
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2028
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Intelsat 36
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Maxar
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68.5 °E
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Aug-16
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2032
|
Intelsat 35e
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|
Boeing
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|
34.5 °W
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|
Jul-17
|
|
2035
|
Intelsat 37e
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|
Boeing
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|
18.0 °W
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|
Sep-17
|
|
2029
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Horizons 3e(12)
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|
Boeing
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|
169.0 °E
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|
Sep-18
|
|
2036
|
Intelsat 39
|
|
Maxar
|
|
62.0 °E
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|
Aug-19
|
|
2037
|
Galaxy 30
|
|
NG
|
|
DRIFT
|
|
Aug-20
|
|
2035
|
Inclined Orbit Satellites
|
|
|
|
|
|
|
|
|
Intelsat 26
|
|
Boeing
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|
63.7 °E
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|
Feb-97
|
|
2022
|
Galaxy 25
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|
Maxar
|
|
32.9 °E
|
|
May-97
|
|
2023
|
Intelsat 5
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|
Boeing
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|
137.0 °W
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|
Aug-97
|
|
2024
|
Galaxy 11
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|
Boeing
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|
93.1 °W
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|
Dec-99
|
|
2024
|
Intelsat 9
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|
Boeing
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|
50.0 °W
|
|
Jul-00
|
|
2022
|
Intelsat 12
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|
Maxar
|
|
64.3 °E
|
|
Oct-00
|
|
2021
|
Intelsat 1R
|
|
Boeing
|
|
157.1 °E
|
|
Nov-00
|
|
2023
|
Intelsat 10
|
|
Boeing
|
|
47.5 °E
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|
May-01
|
|
2026
|
Intelsat 902
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|
Maxar
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|
50.1 °W
|
|
Aug-01
|
|
2024
|
Intelsat 904
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|
Maxar
|
|
29.5 °W
|
|
Feb-02
|
|
2025
|
Intelsat 905
|
|
Maxar
|
|
24.5 °W
|
|
Jun-02
|
|
2031
|
Intelsat 906
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|
Maxar
|
|
64.2 °E
|
|
Sep-02
|
|
2027
|
Galaxy 12
|
|
NG
|
|
129.0 °W
|
|
Apr-03
|
|
2025
|
Payload Hosted on Third-Party Satellites
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|
|
|
|
|
|
|
|
Intelsat 1W(13)
|
|
Thales
|
|
0.9 °W
|
|
Oct-09
|
|
2025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Satellite
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|
Manufacturer
|
|
Orbital
Location
|
|
Launch Date
|
|
Estimated End of
Service Life (1)
|
Intelsat 32e(14)
|
|
Airbus
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|
43.2 °W
|
|
Feb-17
|
|
2032
|
Intelsat 38(15)
|
|
Maxar
|
|
45.1 °E
|
|
Sep-18
|
|
2036
|
(1)Engineering estimates of the service life as of December 31, 2020 as determined by remaining fuel levels, consumption rates and other considerations (including power) and assuming no relocation of the satellite. Such estimates are subject to change based upon a number of factors, including updated operating data from manufacturers.
(2)Maxar Technologies Inc. (“Maxar”), formerly Space Systems/Loral, LLC (“SSL”).
(3)Boeing Satellite Systems, Inc. (“BSS”), formerly Hughes Aircraft Company.
(4)EchoStar Communications Corporation owns all of this satellite’s Ku-band transponders and a portion of the common elements of the satellite.
(5)Horizons Satellite Holdings LLC (“Horizons Holdings”), a joint venture with JSAT International, Inc. (“JSAT”), owns and operates the Ku-band payload on this satellite. We are the exclusive owner of the C-band payload.
(6)Telenor Satellite AS (“Telenor”) owns 18 Ku-band transponders (measured in equivalent 36 MHz transponders) on this satellite. EADS Astrium was renamed AIRBUS Defence & Space (“Airbus”). Pending the successful rendezvous and docking of a mission extension vehicle with Intelsat 1002, anticipated to occur in early Q2 2021, the estimated end of service life of this satellite is expected to extend to 2026.
(7)Northrop Grumman (“NG”), formerly Orbital Sciences.
(8)Thales Alenia Space (“Thales”).
(9)Horizons Holdings owns the payload on this satellite and we operate the payload for the joint venture.
(10)Intelsat 28 was formerly known as Intelsat New Dawn.
(11)Intelsat 22 includes an ultra high-frequency payload owned by the Australian Defence Force.
(12)Horizons-3 Satellite LLC, a joint venture with JSAT, owns and operates this satellite.
(13)Intelsat 1W refers to a Ku-band payload on Thor 6, a satellite operated by Telenor.
(14)Intelsat 32e refers to a HTS Ku-band payload we operate on a satellite also known as Sky Brasil 1.
(15)Intelsat 38 refers to a Ku-band payload on Azerspace-2, a satellite operated by Azercosmos Open Joint Stock Company.
Satellite Systems
There are three primary types of commercial communications satellite systems: LEO systems, medium-earth orbit systems and GEO systems. All of our satellites are geosynchronous satellites and are located approximately 22,200 miles, or 35,800 kilometers, above the equator. These satellites can receive radio frequency communications from an origination point, relay those signals over great distances and distribute those signals to a single receiver or multiple receivers within the coverage areas of the satellites’ transmission beams.
Geosynchronous satellites send these signals using various parts of the radio frequency spectrum. The spectrum available for use at each orbital location includes the following frequency bands in which most commercial satellite services are offered today:
•C-band-low power, broad beams requiring use of relatively larger antennae, valued as spectrum least susceptible to transmission impairments such as rain;
•Ku-band-high power, narrow to medium size beams facilitating use of smaller antennae favored by businesses; and
•Ka-band-very high power, very narrow beams facilitating use of very small transmit/receive antennae, but somewhat less reliable due to high transmission weather-related impairments. The Ka-band is utilized for various applications, including consumer broadband services.
Substantially all of the station-kept satellites in our fleet are designed to provide capacity using the C- and/or Ku-bands of this spectrum.
A geosynchronous satellite is referred to as geostationary, or station-kept, when it is operated within an assigned orbital control, or station-keeping box, which is defined by a specific range of latitudes and longitudes. Geostationary satellites revolve around the earth with a speed that corresponds to that of the earth’s rotation and appear to remain above a fixed point on the earth’s surface at all times. Geosynchronous satellites that are not station-kept are in inclined orbit. The daily north-south motion of a satellite in inclined orbit exceeds the specified range of latitudes of its assigned station-keeping box, and the satellite appears to oscillate slowly, moving above and below the equator every day. An operator will typically operate a satellite in inclined orbit toward the end of its service life because the operator is able to save significant amounts of fuel by not controlling the north-south position of the satellite and is thereby able to substantially extend the service life of the satellite. The types of services and customers that can access an inclined orbit satellite have traditionally been limited due to the movement of the satellite relative to a fixed ground antenna. However, recent technological innovations now allow the use of inclined orbit capacity for certain applications. As a result, we anticipate demand for inclined orbit capacity may increase over the next few years if these applications are successfully introduced. As of December 31, 2020, 13 of our satellites were operating in an inclined orbit, with most continuing to earn revenue beyond our original estimated life for each of these satellites.
In-Orbit Satellites
We believe that our strong operational performance is due primarily to our satellite procurement and operations philosophy. Our operations and engineering staff is involved from the design through the decommissioning of each satellite that we procure. Our staff
works at the manufacturers’ and launchers’ sites to monitor progress, allowing us to maintain close technical collaboration with our contractors during the process of designing, manufacturing and launching a satellite. We continue our engineering involvement throughout the operating lifetime of each satellite. Extensive monitoring of earth station operations, around-the-clock satellite control and network operations support ensure our consistent operational quality, as well as timely corrections when problems occur. In addition, we have in place contingency plans for technical problems that may occur during the lifetime of a satellite.
These features also contribute to the resilience of our network, which enables us to ensure the continuity of service that is important for our customers and to retain revenue in the event that we need to move customers to alternative capacity. The design flexibility of some of our satellites enables us to meet customer demand and respond to changing market conditions.
As of December 31, 2020, we had approximately 1,675 station-kept transponders on our traditional wide beam fleet, for which the average fill rate was 73%. The HTS Intelsat Epic transponder unit count was approximately 1,225, reflecting an immaterial change from 2019.
The design life of a satellite is the length of time that the satellite’s hardware is designed by the manufacturer to remain operational under normal operating conditions. In contrast, a satellite’s orbital maneuver life is the length of time the satellite has enough fuel to remain operational. A satellite’s service life is based upon fuel levels and other considerations, including power. Satellites launched in the recent past are generally expected to remain in service for the lesser of maneuver life and 16 years. Satellites typically have enough fuel to maintain between 16 and 18 years of station-kept operations. The average remaining service life of our satellites was approximately 7.6 years as of December 31, 2020, weighted on the basis of nominally available capacity for the station-kept satellites we own.
Satellites on Order
As of December 31, 2020, we had ten satellites under contract for construction and launch.
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|
|
Satellite
|
|
Manufacturer
|
|
Role
|
|
Earliest
Launch Date
|
|
Expected Launch Provider
|
Intelsat 40e
|
|
Maxar
|
|
Next Generation HTS satellite for North America
|
|
2022
|
|
SpaceX
|
Galaxy 31
|
|
Maxar
|
|
C-band North America satellite
|
|
2022
|
|
SpaceX
|
Galaxy 32
|
|
Maxar
|
|
C-band North America satellite
|
|
2022
|
|
SpaceX
|
Galaxy 33
|
|
NG
|
|
C-band North America satellite
|
|
2022
|
|
SpaceX
|
Galaxy 34
|
|
NG
|
|
C-band North America satellite
|
|
2022
|
|
SpaceX
|
Galaxy 35
|
|
Maxar
|
|
C-band North America satellite
|
|
2022
|
|
Arianespace
|
Galaxy 36
|
|
Maxar
|
|
C-band North America satellite
|
|
2022
|
|
Arianespace
|
Galaxy 37
|
|
Maxar
|
|
C-band North America satellite
|
|
2023
|
|
Not attributed
|
Intelsat 42
|
|
Airbus
|
|
High-Throughput SDS
|
|
2023
|
|
Not attributed
|
Intelsat 43
|
|
Airbus
|
|
High-Throughput SDS
|
|
2024
|
|
Not attributed
|
Future Satellites
We expect to replace other existing satellites, as necessary, with satellites that meet customer needs and that have a compelling economic rationale. We periodically conduct evaluations to determine the current and projected strategic and economic value of our existing and planned satellites to guide us in redeploying satellite resources as appropriate. In early 2020, Intelsat selected Maxar to manufacture Intelsat 40e, a next generation geostationary communications satellite that is scheduled to launch in 2022. On December 31, 2020, Intelsat signed an agreement with Airbus to produce two fully-flexible, in-orbit reconfigurable SDS. These satellites will be a catalyst for growth, enabling new revenue opportunities from the fast-growing mobility sector, as well as positioning the Company to capture additional managed services business across other customer sectors.
Satellite Network Operations and Current Satellite Ground Facilities
We control and operate each of our satellites and manage the communications services for which each satellite is used from the time of its initial deployment through the end of its operational life, and we believe that our technical skill in performing these critical operations differentiates us from our competition. We provide most of these services from our satellite operations centers in McLean, Virginia and Long Beach, California, and our customer service center in Ellenwood, Georgia. In the event of a natural disaster or other situation disabling one of the facilities, each satellite operations center has the functional ability to provide instantaneous restoration of services on behalf of the other, demonstrating the efficiency and effectiveness of our network. Utilizing state of the art satellite command and control hardware and software, our satellite operations centers analyze telemetry from our satellites in order to monitor their status and track their location.
Our satellite operations centers use a network of ground facilities to perform their functions. This network includes 14 earth stations that provide tracking, telemetry and commanding (“TT&C”) services for our satellites and various other earth stations worldwide. Through our ground facilities, we constantly monitor signal quality, protect bandwidth from piracy or other interference and maintain customer installed equipment.
Our satellite customer service center located in Ellenwood, Georgia includes a Radio Frequency Operations Center, a Managed Services Operations Center and an Intelsat Secured Operations Center. This facility is responsible for managing the communications services that we provide to our satellite customers and is the first point of contact for customers needing assistance in using our satellite network. We also maintain a back-up operations facility and data center a relatively short distance from our McLean, Virginia facility in Hagerstown, Maryland. This facility provides back-up emergency operational services in the event that our Ellenwood, Georgia customer service center experiences an interruption.
We have invested heavily in our fully integrated IntelsatOne terrestrial network which complements our satellite network. Our network includes teleport, leased fiber and network performance monitoring systems and enables us to provide end-to-end managed solutions to our customers. In addition to leased fiber connecting high-density routes, our ground network also features strategically located PoPs, which are drop-off points for our customers’ traffic that are close to major interconnection hubs for telecommunications applications, video transmissions and trunking to the Internet backbone. Our terrestrial network is an all-IP network environment that results in improved ground support of high bandwidth applications such as HD video. The network architecture allows us to converge our media and network services terrestrial network infrastructures, resulting in reduced costs, and provides opportunities for generating additional revenue from existing and new customers by bundling combinations of media and network services products that can be offered through a single access circuit into our network.
Capacity Sparing and Backup and General Satellite Risk Management
As part of our satellite risk management, we continually evaluate, and design plans to mitigate, the areas of greatest risk within our fleet, especially for those satellites with known technical risks. We believe that the availability of spare transponder services capacity, together with the overlapping coverage areas of our satellites and flexible satellite design features described in—Our Satellite Network—Satellite Systems above, are important aspects of our ability to provide reliable service to our customers. In addition, these factors could help us to mitigate the financial impact to our operations attributable to the occurrence of a major satellite anomaly, including the loss of a satellite. Although we do not maintain backup for all of our transponder services operating capacity, we generally maintain some form of backup capacity for each satellite designated as being in primary operating service. Our restoration backup capacity may include any one or more of the following:
•designated reserve transponders on the satellite or other on-board backup systems or designed-in redundancies;
•an in-orbit spare satellite; or
•interim restoration capacity on other satellites.
In addition, we provide some capacity on a preemptible basis and could preempt the use of this capacity to provide backup capacity in the event of a loss of a satellite.
We typically obtain launch insurance for our satellites before launch and will decide whether or not to obtain such insurance taking into consideration launch insurance rates, terms of available coverage and alternative risk management strategies, including the availability of backup satellites and transponders in the event of a launch failure. Launch insurance coverage is typically in an amount equal to the fully capitalized cost of the satellite, which generally includes the construction costs, the portion of the insurance premium related to launch, the cost of the launch services and capitalized interest (but may exclude any unpaid incentive payments to the manufacturer).
As of December 31, 2020, two of the satellites in our fleet were covered by in-orbit insurance. In-orbit insurance coverage may initially be for an amount comparable to launch insurance levels, generally decreases over time and is typically based on the declining book value of the satellite. We do not currently insure against lost revenue in the event of a total or partial loss of a satellite.
Gogo CA Portfolio
We maintain a comprehensive portfolio consisting of our in-flight network, in-flight systems, in-flight services, and aviation partner support.
•In-flight Network. Our network solutions are engineered to provide industry-leading cost, capacity, coverage, reliability and aero-performance. We offer aviation partners a variety of network solutions suitable for operation on most of the world’s commercial aircraft. Intelsat is a major supplier of satellite capacity for these solutions, but we also purchase capacity from certain other satellite operators in connection with our in-flight network. As of December 31, 2020, we marketed our global satellite network solutions to approximately 21,000 commercial aircraft.
•In-flight Systems. Our in-flight systems are designed for superior performance, future adaptability and ease of certification, installation and maintenance. Each system consists of: (i) an antenna specifically designed for the network and technology
being used to provide the service; (ii) a modular in-cabin Wi-Fi network that includes state-of-the art servers, modems and wireless access points; and (iii) system software designed to reliably support a variety of in-flight services provided by Gogo CA, our aviation partners and third parties. Our 2Ku system employs a modular, open architecture that is adaptable to current and future satellites of multiple types provided by multiple satellite providers, supports different modems and is upgradeable with minimum disruption to the flight schedules and operations of our aviation partners.
•In-flight Services. We provide a wide range of in-flight services for passengers, flight and cabin crews and operational use by our aviation partners. We leverage our increased bandwidth to expand our connectivity and entertainment services.
◦Passenger Connectivity Services. Passengers connect to the Internet from their laptops and personal electronic devices, as they would on the ground, to access corporate and personal applications that include streaming services on our higher capacity networks. Our continued increases in bandwidth enable us to serve more passengers per flight. Gogo CA passengers may select from a variety of pricing options tailored to devices, routes, available bandwidth and session durations, in addition to monthly and annual subscriptions. Passenger connectivity services are and will continue to be a significant source of our revenue.
◦Passenger Entertainment Services. Using our video-on-demand product accessible from passengers’ personal electronic devices, passengers can access a large library of entertainment options, which currently include on-demand movies and television shows. Through IPTV, we deliver live television content to passengers on satellite-equipped flights using our in-cabin network. As of December 31, 2020, our IFE services were available on more than 2,500 aircraft and IPTV was available on more than 680 aircraft.
•Aviation Partner Support. Each Gogo CA airline partner has a dedicated Gogo CA account team that provides assistance during the certification and installation process and throughout the term of our partnership. We also provide a variety of operational support services required to install and maintain our in-flight systems. Our Gogo CA experienced technical engineers assist in the certification and installation of our equipment on commercial aircraft of all major models and work with the Federal Aviation Administration (“FAA”) and international regulators to obtain STCs and other required approvals, and work with airline partners or third parties to assist in installation. Further, we have extensive databases, a big data platform and analytical capabilities to evaluate our system and operational performance. Our analytical capabilities are used by us, our aviation partners and our vendors in designing, manufacturing, and operating our systems to maximize performance and minimize disruptions and system downtime.
Satellite Health and Technology
Our satellite fleet is diversified by manufacturer and satellite type, and is generally healthy, with 99.998% transponder availability on all operational satellites during the year ended December 31, 2020. We have experienced some technical problems with our current fleet but have been able to minimize the impact of these problems on our customers, our operations and our business in recent years. Many of these problems have been component failures and anomalies that have had little long-term impact to date on the overall transponder availability in our satellite fleet. All of our satellites have been designed to accommodate an anticipated rate of equipment failures with adequate redundancy to meet or exceed their orbital design lives, and to date, this redundancy design scheme has proven effective. After each anomaly we have generally restored services for our customers on the affected satellite, provided alternative capacity on other satellites in our fleet, or provided capacity that we purchased from other satellite operators.
Significant Anomalies
On April 5, 2010, our Galaxy 15 satellite experienced an anomaly resulting in our inability to command the satellite. Galaxy 15 is a Star-2 satellite manufactured by Orbital Sciences Corporation. On December 23, 2010, we recovered command of the spacecraft and we have since uploaded flight software code to protect against future anomalies of this type. As of December 31, 2020, Galaxy 15 continued to provide normal service.
On April 22, 2011, our Intelsat 28 satellite, formerly known as the Intelsat New Dawn satellite, was launched into orbit. Subsequent to the launch, the satellite experienced an anomaly during the deployment of its west antenna reflector, which controls communications in the C-band frequency. The anomaly had not been experienced previously on other STAR satellites manufactured by Orbital Sciences Corporation, including those in our fleet. The New Dawn joint venture filed a partial loss claim with its insurers relating to the C-band antenna reflector anomaly and all of the insurance proceeds from the partial loss claim were received in 2011. The Ku-band antenna reflector deployed and that portion of the satellite is operating as planned, entering service in June 2011. A Failure Review Board established to determine the cause of the anomaly completed its investigation in July 2011 and concluded that the deployment anomaly of the C-band reflector was most likely due to a malfunction of the reflector sunshield. As a result, the sunshield interfered with the ejection release mechanism, and prevented the deployment of the C-band antenna. The Failure Review Board also recommended corrective actions for Orbital Sciences Corporation satellites not yet launched to prevent reoccurrence of the anomaly. Appropriate corrective actions were implemented on Intelsat 18, which was successfully launched in October 2011, and on Intelsat 23, which was launched in October 2012.
During launch operations of Intelsat 19 on June 1, 2012, the satellite experienced damage to its south solar array. Although both solar arrays are deployed, the power available to the satellite is less than is required to operate 100% of the payload capacity. An Independent Oversight Board (“IOB”) was formed by SSL and Sea Launch to investigate the solar array deployment anomaly. The IOB concluded that the anomaly occurred before the spacecraft separated from the launch vehicle, during the ascent phase of the launch, and originated in one of the satellite’s two solar array wings due to a rare combination of factors in the panel fabrication and was unrelated to the launch vehicle. While the satellite is operational, the anomaly resulted in structural and electrical damage to one solar array wing, which reduced the amount of power available for payload operation. Additionally, we filed a partial loss claim with our insurers relating to the solar array anomaly. We received $84.8 million of insurance proceeds related to the claim in 2013. As planned, Intelsat 19 replaced Intelsat 8 at 166°E, in August 2012.
On February 1, 2013, the launch vehicle for our Intelsat 27 satellite failed shortly after liftoff and the satellite was completely destroyed. A Failure Review Board was established and subsequently concluded that the launch failed due to the mechanical failure of one of the first stage engine’s thrust control components. The satellite and launch vehicle were fully insured, and we received $406.2 million of insurance proceeds in 2013.
During orbit raising of Intelsat 33e in September 2016, the satellite experienced a malfunction of the main satellite thruster. Orbit raising was subsequently completed using a different set of satellite thrusters. The anomaly resulted in a delay of approximately three months in reaching the geostationary orbit, as well as a reduction in the projected lifetime of the satellite. Intelsat 33e entered service in January 2017. In addition, in February 2017, measurements indicated higher than expected fuel use while performing station-keeping maneuvers. There is no evidence of any impact to the communications payload. A Failure Review Board completed its investigation of the primary thruster failure and the fuel use anomalies and identified several design, build and screening improvements that are being implemented by the satellite manufacturer for future satellites using the same engine. In addition, the manufacturer has adapted its propellant estimation software for both anomalies, which we take into account in making our end of life prediction. We filed a loss claim with our insurers in March 2017 relating to the reduction of life. As of December 31, 2018, we settled with all insurers and received total collection and settlement payments of $70 million in cash.
In April 2019, the Intelsat 29e satellite (in service since 2016) experienced an anomaly that resulted in a total loss of the satellite. A Failure Review Board comprised of the satellite’s manufacturer, Boeing Satellite Systems, Inc., the Company and external independent experts was convened to complete a comprehensive analysis of the cause of the anomaly. The board concluded that the anomaly was either caused by a harness flaw in conjunction with an electrostatic discharge event related to solar weather activity, or the impact of a micrometeoroid. As we have other similar spacecraft on-orbit of the same Boeing series, we extended the investigation by conducting a thorough analysis of other Boeing-manufactured satellites in our fleet. Based on our findings, we believe that the Intelsat 29e anomaly is an isolated incident and that other similar spacecraft are at a very low risk of experiencing the same sequence of events. We are also incorporating information gleaned from the investigation into future design and manufacturing plans to mitigate the conditions that may have caused the incident.
Other Anomalies
We have also identified four other types of common anomalies among the satellite models in our fleet, which have had an operational impact in the past and could, if they materialize, have an impact in the future. These are:
•failure of the on-board satellite control processor (“SCP”) in Boeing 601 (“BSS 601”) satellites;
•failure of the on-board Xenon-Ion Propulsion System (“XIPS”) used to maintain the in-orbit position of Boeing 601 High Power Series (“BSS 601 HP”) satellites;
•accelerated solar array degradation in early Boeing 702 High Power Series (“BSS 702 HP”) satellites; and
•failure of gyroscopes on certain SSL satellites.
SCP Failures. Many of our satellites use an on-board SCP to provide automatic on-board control of many operational functions. SCPs are a critical component in the operation of such satellites. Each such satellite has a backup SCP, which is available in the event of a failure of the primary SCP. Certain BSS 601 satellites have experienced SCP failures. The risk of SCP failure appears to decline as these satellites age.
As of December 31, 2020, we operated one BSS 601 satellite, Intelsat 26. This satellite was identified as having heightened susceptibility to the SCP problem. Intelsat 26 has been in continuous operation since 1997. Both primary and backup SCPs on this satellite are monitored regularly and remain fully functional. Accordingly, we believe it is unlikely that additional SCP failures will occur. Intelsat 26 is currently planned to be decommissioned in 2022.
BSS 601 HP XIPS. The BSS 601 HP satellite uses XIPS as its primary propulsion system. There are two separate XIPS on each satellite, each one of which is capable of maintaining the satellite in its orbital position. The BSS 601 HP satellite also has a completely independent chemical propulsion system as a backup to the XIPS. As a result, the failure of a XIPS on a BSS 601 HP satellite typically would have no effect on the satellite’s performance or its operating life. However, the failure of both XIPS would require the use of the backup chemical propulsion system, which could result in a shorter operating life for the satellite depending on
the amount of chemical fuel remaining. XIPS failures do not typically result in a catastrophic failure of the satellite or affect the communications capability of the satellite.
As of December 31, 2020, we operated four BSS 601 HP satellites, Intelsat 5, Intelsat 9, and Intelsat 10, which are now in inclined orbit, and Galaxy 13/Horizons 1. Galaxy 13/Horizons 1 has one XIPS thruster available as its primary propulsion system. Intelsat 5, Intelsat 9 and Intelsat 10 have experienced the failure of both XIPS and are operating on their backup chemical propulsion systems. No assurance can be given that we will not have further XIPS failures that result in shortened satellite lives. We have decommissioned three satellites that had experienced failure of both XIPS.
BSS 702 HP Solar Arrays. All of our satellites have solar arrays that power their operating systems and transponders and recharge the batteries used when solar power is not available. Solar array performance typically degrades over time in a predictable manner. Additional power margins and other operational flexibility are designed into satellites to allow for such degradation without loss of performance or operating life. Certain BSS 702 HP satellites have experienced greater than anticipated degradation of their solar arrays resulting from the design of the solar arrays. Such degradation, if continued, will likely result in a shortened operating life of a satellite or the need to reduce the use of the communications payload.
As of December 31, 2020, we operated three BSS 702 HP satellites, two of which are affected by accelerated solar array degradation, Galaxy 11 and Intelsat 1R. Service to customers has not been affected, and we expect that both of these satellites will continue to serve customers until we replace or supplement them with new satellites. Along with the manufacturer, we continually monitor the problem to determine its cause and its expected effect. Due to this continued degradation, Galaxy 11 was redeployed following its replacement by Intelsat 34. Intelsat 1R was redeployed following its replacement by Intelsat 14. The third BSS 702 HP satellite that we operated as of December 31, 2020, Galaxy 3C, was launched after the solar array anomaly was identified, and it has a substantially different solar array design intended to eliminate the problem. This satellite has been in service since September 2002 and has not experienced similar degradation problems.
Maxar (formerly SSL) gyroscopes. Some of our satellites use gyroscopes to provide 3-axes attitude information during orbit inclination maneuvers. Certain Maxar satellites use gyroscopes that have been identified as having a higher probability of failing. There are four gyroscopes on each of these Maxar satellites, three of which are needed for normal operation, and the fourth is a spare. The failure of a single gyroscope on a given satellite would have no effect on the satellite’s performance or its operating life. A failure of two or more gyroscopes on a given satellite would require us to use an alternative method for inclination control. This alternative method would likely result in a reduction in the remaining life of the satellite. As of December 31, 2020, we operated nine Maxar satellites that use these gyroscopes, of which only two satellites require gyroscopes for station-keeping maneuvers.
Regulation
As an operator of a privately-owned global satellite system and a provider of commercial aviation IFC and IFE services, we are subject to U.S. government regulation, regulation by non-U.S. national telecommunications authorities, the International Telecommunication Union (“ITU”) frequency coordination process and regulations, regulation by non-U.S. commercial aviation authorities and certain privacy and data security-related regulations.
U.S. Government Regulation
FCC Regulation. The majority of the satellites in our current constellation are licensed and regulated by the FCC. We have final or temporary FCC authorization for all of our U.S.-licensed operating satellites. The special temporary authorizations in effect relating to our satellites cover various time periods, and thus the number held at any given time varies. FCC satellite licenses have a fifteen-year term. At the end of a license term, we can request an extension to continue operating a satellite. In addition, our FCC satellite licenses that relate to use of those orbital locations and associated frequencies that were transferred to the United States at the time of our privatization in July 2001 are conditioned on our remaining a signatory to the Public Services Agreement among the International Telecommunications Satellite Organization (“ITSO”), the Company and certain of our subsidiaries (the “Public Services Agreement”). Furthermore, any transfer of these licenses by us to a successor-in-interest is only permitted if such successor-in-interest has undertaken to perform our obligations under the Public Services Agreement. In November 2020, we filed a pending petition with the FCC seeking to replace these conditions in the event of termination of ITSO and the Public Services Agreement with a condition for Intelsat to provide global connectivity and coverage and non-discriminatory access to the Intelsat system. Some of our authorizations contain waivers of technical regulations. Many of our technical waivers were required when our satellites were initially licensed by the United States at privatization in 2001 because, as satellites previously operated by an intergovernmental entity, they had not been built in compliance with certain U.S. regulations. Since privatization, several replacement satellites for satellites licensed at privatization also have needed technical waivers as they are technically similar to the satellites they are replacing.
Changes to our satellite system generally require prior FCC approval. From time to time, we have pending applications for permanent or temporary changes in orbital locations, frequencies and technical design. From time to time, we also file applications for replacement or additional satellites. Replacement satellite applications are eligible for streamlined processing if they seek authority for the same orbital location, frequency bands and coverage area as an existing satellite and will be brought into use at approximately the
same time, but no later than, the existing satellite is retired. The FCC processes satellite applications for new orbital locations or frequencies on a first come, first served basis. The FCC requires licensees of new, non-replacement, geostationary satellites to post a bond and to comply with a milestone to launch and operate the satellite within five years of the license grant. The bond starts at $1 million and increases, pro rata, in proportion to the time that has elapsed since the license was granted to the time of the launch and operate milestone. At the end of the five-year period, the bond amount will be $3 million. A satellite licensee that does not satisfy the launch and operate milestone will lose its license and must forfeit the bond absent circumstances warranting a milestone extension under the FCC’s rules and policies. An operator that elects to relinquish its license prior to the five-year launch and operate milestone will forfeit the amount of accrued bond as of the date the license is relinquished. We hold other FCC licenses, including earth station licenses associated with technical facilities located in several states and licenses for terminals. We must pay FCC filing fees in connection with our space station and earth station applications, and we must also pay annual regulatory fees to the FCC. Violations of the FCC’s rules can result in various sanctions including fines, loss of authorizations, or the denial of applications for new authorizations or the renewal of existing authorizations.
Intelsat also holds various authorizations to operate mobile earth stations on land vehicles, maritime vessels and planes, including two aeronautical earth station authorizations acquired in December 2020 as part of the Gogo Transaction.
One of our subsidiaries holds a Section 214 authorization. However, we currently do not sell services as a common carrier. Therefore, we are not subject to rate regulation or the obligation not to discriminate among customers.
Federal Aviation Administration. The FAA prescribes standards and certification requirements for our Gogo CA business for the manufacturing of aircraft and aircraft components, and certifies repair stations to perform aircraft maintenance, preventive maintenance and alterations, including the installation and maintenance of aircraft components. Each type of aircraft operated in the U.S. under an FAA-issued standard airworthiness certificate must possess an FAA Type Certificate, which constitutes approval of the design of the aircraft type based on applicable airworthiness standards. When a party other than the holder of the FAA Type Certificate develops a major modification to an aircraft already type-certificated, that party must obtain an FAA-issued STC approving the design of the modified aircraft type. We regularly obtain STCs for each aircraft type operated by each airline partner on whose aircraft our equipment will be installed and separate STCs typically are required for different configurations of the same aircraft type, such as when they are configured differently for different airlines. After obtaining an STC, a manufacturer desiring to manufacture components to be used in the modification covered by the STC must apply to the FAA for a Parts Manufacturer Approval (“PMA”), which permits the holder to manufacture and sell components manufactured in conformity with the PMA and its approved design and data package. In general, each initial PMA is an approval of a manufacturing or modification facility’s production quality control system. PMA supplements are obtained to authorize the manufacture of a particular part in accordance with the requirements of the pertinent PMA, including its production quality control system. We routinely apply for and receive such PMAs and supplements.
U.S. Export Control Requirements and Sanctions Regulation. Intelsat must comply with U.S. export control and trade sanctions laws and regulations as follows:
The Export Administration Act/International Emergency Economic Powers Act, implemented by the Export Administration Regulations (“EAR”) and administered by the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), regulates exports of dual-use controlled items, which includes commercial communications satellites, associated ground equipment, related software, and technology. The EAR also controls dual-use equipment exported to earth stations in our ground network located outside of the United States and to customers as needed. Intelsat uses EAR approved licensing exceptions for many of our export-controlled programs, and EAR licenses as required. It is our practice to obtain all licenses necessary, or correctly document the license exception authorized, for the furnishing of original or spare equipment for the operation of our TT&C ground stations, other network stations, and customer locations in a timely manner to facilitate the shipment of this equipment when needed.
The Arms Export Control Act, implemented by the International Traffic in Arms Regulations (“ITAR”) and administered by the U.S. Department of State’s Directorate of Defense Trade Controls, regulates the export of items on the U.S. Munitions List, including the export of certain satellites and/or payloads with defined military and/or government end use capabilities and characteristics, certain associated hardware, defense services, and technical information relating to satellites to non-U.S. persons (including satellite manufacturers, component suppliers, launch services providers, insurers, customers, Intelsat employees, and other non-U.S. persons). A small portion of Intelsat’s controlled technology remains under ITAR. Intelsat does not currently have any active ITAR licenses.
Certain of Intelsat’s contracts for consulting, manufacture, launch, and insurance of Intelsat’s and third-party satellites involve the export to non-U.S. persons of technology and/or hardware; currently these exports are regulated under the EAR. We do not currently need any ITAR authorizations to fulfill our obligations under contracts with non-U.S. entities.
Trade sanctions laws and regulations administered by the U.S. Department of Treasury’s Office of Foreign Assets Control regulate the provision of services to certain countries subject to U.S. trade sanctions. As required, Intelsat holds the authorizations needed to provide satellite capacity and related administrative services to U.S.-sanctioned countries.
U.S. Department of Defense Security Clearances. To participate in classified U.S. government programs, we entered into a proxy agreement with the U.S. government that allows one of our subsidiaries to obtain security clearances from the U.S. Department of Defense as required under the national security laws and regulations of the United States. Such a proxy agreement is required to
insulate the subsidiary performing this work from inappropriate foreign influence and control by Intelsat S.A., a Luxembourg company with significant non-U.S. investments and employees. Security clearances are subject to ongoing scrutiny by the issuing agency, as well as renewal every five years. Intelsat must maintain the security clearances obtained from the U.S. Department of Defense, or else lose the ability to perform our obligations under any classified U.S. government contracts to which our subsidiary is a party. Under those circumstances, the U.S. government would have the right to terminate our contracts requiring access to classified information and we would not be able to enter into new classified contracts. Compliance with the proxy agreement is regularly monitored by the U.S. Department of Defense and reviewed at least annually, and if we materially violate the terms of the proxy agreement, the subsidiary holding the security clearances may be suspended or debarred from performing any U.S. government contracts, whether classified or unclassified. Our current proxy agreement is subject to extension every five years with the agreement of the U.S. Department of Defense.
Regulation by non-U.S. National Telecommunications Authorities
U.K. Regulation. The United Kingdom is the licensing jurisdiction for the Intelsat 12 and Intelsat 26 satellites. Satellite operators in the United Kingdom are regulated by the U.K. Office of Communications (“Ofcom”) and the U.K. Space Agency (“UKSA”). Additionally, Ofcom regulates the use of certain spectrum and orbital resources associated with some of our satellites. Specifically, Intelsat 33e, Intelsat 37e and Intelsat 1R rely partially on U.K. spectrum rights.
Papua New Guinea Regulation. The National Information & Communications Technology Authority of Papua New Guinea (“NICTA”) regulates the use of certain spectrum and orbital resources associated with some of our satellites. Specifically, the following satellites were operated under the regulation of NICTA for all or part of, the year ended December 31, 2020: Galaxy 23, Intelsat 20, Intelsat 26, Intelsat 30, Intelsat 31, Intelsat 33e, Intelsat 36, and Intelsat 39. We are required to pay annual fees to NICTA in connection with the spectrum and orbital resources utilized by these satellites, as well as for other satellite network filings we have the right to use.
German Regulation. We hold licenses from the Federal Network Agency (“Bundesnetzagentur” or “BNetzA”) for several earth stations in Germany, as well as authorizations to use spectrum and orbital resources associated with the operation of the Intelsat 10 and Intelsat 38 satellites and with future satellites. We are required to pay annual fees to BNetzA in connection with the spectrum and orbital resources utilized by these satellites, as well as for other satellite network filings we have the right to use.
Australian Regulation. We hold licenses from the Australian Communications and Media Authority (“ACMA”) for several earth stations in Australia, as well as a Nominated Carrier Declaration.
Japanese Regulation. We hold licenses from the Ministry of Internal Affairs and Communications for several earth stations in Japan, terminals, as well as carrier registrations. We and JSAT are the sole members of Horizons Holdings, and, in 2002, the Japanese telecommunications ministry authorized Horizons Holdings to operate the Ku-band payload on the Galaxy 13/Horizons 1 satellite. In 2003, the FCC added this Ku-band payload to its “Permitted Space Station List,” enabling Horizons Holdings to use the payload to provide non-DTH services in the United States. In May 2004, the FCC expanded this authority to include one-way DTH services. We are the exclusive owner of the C-band payload on Galaxy 13/Horizons 1, which the FCC has licensed us to operate.
Other National Telecommunications Authorities. As a provider of satellite capacity and services, we are also subject to the national communications and broadcasting laws and regulations of all countries in which we operate. In addition, in some cases our ability to operate a satellite in a non-U.S. jurisdiction also arises from a contractual arrangement with a third party. Some countries require us to obtain a license or other form of written authorization from the regulator prior to offering satellite capacity services, operating terminals or providing managed services. We have obtained these licenses or written authorizations, or are in the process of doing so, in all countries that have required us to obtain them. As satellites are launched or relocated, we determine whether such licenses or written authorizations are required and, if so, we obtain them. Most countries allow authorized telecommunications providers to own their own transmission facilities and to purchase satellite capacity without restriction, facilitating customer access to our services. Other countries maintain strict monopoly regimes or otherwise regulate the provision of our services. In order to provide services in these countries, we may need to negotiate an operating agreement with a monopoly entity that covers the types of services to be offered by each party, the contractual terms for service and each party’s rates.
As we have developed our ground network and expanded our service offerings, we have been required to obtain additional licenses and authorizations. These requirements vary from country to country and may include authorizations to provide managed services in approved frequency ranges, as well as other requirements such as local presence, lawful intercept, and telecom or ISP licenses. To date, we believe that we have identified and complied with all of the regulatory requirements applicable to us in connection with our ground network and expanded services.
The International Telecommunication Union Frequency Coordination Process and Associated Regulations
Only nation states have full standing as ITU members. Therefore, we must rely on governments to represent our interests before the ITU, including obtaining new rights to use orbital locations and resolving disputes relating to the ITU’s regulations. We primarily rely upon the United States, the United Kingdom, Germany, and Papua New Guinea to file for orbital slots at the ITU. Our use of
orbital locations is subject to the frequency coordination and recording process of the ITU. In order to protect satellite networks from harmful radio frequency interference from other satellite networks, the ITU maintains a Master International Frequency Register (“MIFR”) of radio frequency assignments and their associated orbital locations. Each ITU notifying administration is required by treaty to give notice of, coordinate and record its proposed use of radio frequency assignments and associated orbital locations with the ITU’s Radiocommunication Bureau.
When a frequency assignment is recorded in the MIFR, the ITU publishes this information so that all potential users of frequencies and orbital locations are aware of the need to protect the recorded assignments associated with a given orbital location from subsequent or nonconforming interfering uses by member states of the ITU. The ITU’s Radio Regulations do not contain mandatory dispute resolution or enforcement mechanisms. Rather, the ITU relies on technical rules as a basis for coordination and consultations between member states for matters related to spectrum disputes. Given the lack of enforcement mechanisms within the ITU treaty, neither the ITU specifically, nor international law generally, provide clear remedies if this voluntary process fails.
In the U.S. regulatory process, an operator may submit an ITU satellite network filing to the FCC for forwarding to the ITU prior to the operator filing a complete FCC license application. Submission of such an ITU filing will reserve for the operator a place in the FCC’s first come, first served licensing queue provided the operator posts a $500,000 bond. If the operator fails to file a complete FCC license application for the orbital location within two years, frequencies and polarization proposed in the ITU satellite network filing as well as the bond will be forfeited.
Regulation by non-U.S. Commercial Aviation Authorities
For aircraft registered with a civil aviation authority (“CAA”) outside of the U.S., the installation of Intelsat equipment requires airworthiness certification from an airworthiness certification body. Typically, the CAA of the country in which the aircraft is registered is responsible for ensuring the airworthiness of any aircraft modifications under its authority. The FAA holds bilateral agreements with a number of certification authorities around the globe to facilitate the reciprocal airworthiness certification of civil aeronautical products that are imported/exported between two signatory countries. For countries with which the FAA does not have a bilateral agreement, Intelsat must apply for certification approval with the CAA of the country in which the aircraft is registered, and will be required to comply with the airworthiness regulations of the country in which the aircraft is registered.
Privacy and Data Security-Related Regulations
In the ordinary course of our commercial aviation business, we collect personal information, such as name, address, e-mail address and credit card information, directly from passengers when they register to use our service. We also may obtain information about our users from third parties. Our collection and use of such information is intended to comply with our privacy policy, applicable law and our contractual obligations to airlines, customers, and other third parties, in addition to industry standards such as the Payment Card Industry Data Security Standard. We are also subject to other federal and state consumer privacy and data security requirements. For example, Section 5 of the Federal Trade Commission (“FTC”) Act prohibits “unfair or deceptive acts or practices in or affecting commerce,” and state “mini-FTC Acts” prohibit unfair or deceptive acts or practices, along with data security breach notification laws requiring entities holding certain personal data to provide notices in the event of a data security breach. Further, we are subject to the California Consumer Privacy Act (“CCPA”) and the European Union’s (“EU”) General Data Protection Regulation (“GDPR”). The regulation of data privacy and security in the EU and in other jurisdictions continues to evolve. EU member states also have some flexibility to supplement the GDPR with their own laws and regulations and may apply stricter requirements for certain data processing activities.
Environmental, Health and Safety Matters
Intelsat aims to provide leadership in the identification and promotion of sustainable practices and services that reduce the company’s environmental impact, educate and engage staff and create a more environmentally sustainable organization. Our operations are subject to various laws and regulations relating to the protection of the environment, including those governing the management, storage and disposal of hazardous materials and the cleanup of contamination should it arise. As an owner or operator of property and in connection with current and historical operations at some of our sites, we could incur significant costs, including cleanup costs, fines, sanctions and third-party claims, as a result of violations of or liabilities under environmental laws and regulations. For instance, some of our operations require continuous power supply and, as a result, current and past operations at our teleports and other technical facilities include fuel storage and batteries for back-up power generators. We believe, however, that our operations are in substantial compliance with applicable environmental laws and regulations. Moreover, Intelsat’s properties generally operate pursuant to a Conditional Use Permit. In order to obtain such a permit, Intelsat must demonstrate compliance with all applicable environmental laws and must maintain programs to prevent or minimize damage to public health, safety and the environment, from, for example, a release or threatened release of hazardous materials, including but not limited to ground water, air, offsets and storage. Intelsat promotes an environmentally friendly and safe culture and complies with applicable laws and regulations in regard to the environment, safety and personal health. Intelsat also complies with community right-to-know laws and has undertaken compliance with certain international organizations, such as the International Civil Aviation Organization, the European
Aviation Safety Agency, the FAA and the International Organization for Standardization 45001:2018, which govern the Company’s Safety Management System (“SMS”). The SMS is a formal framework for managing, mitigating and avoiding safety risks. It also allows for adaptability, change and continuous improvement of safety practices by assessing, collecting, reporting and predicting potential or actual safety hazards or risks.
Employees
As of December 31, 2020, we had 1,774 full-time regular employees. These employees consisted of:
•1,024 employees in engineering, operations and related information systems;
•372 employees in sales, marketing and strategy;
•291 employees in finance, legal and other administrative functions; and
•87 employees in support of government sales and marketing.
We believe that our relations with our employees are good. None of our employees is represented by a union or covered by a collective bargaining agreement.
History and Development of the Company
The Company
Our legal and commercial name is Intelsat S.A. The Company was organized as a public limited liability company (société anonyme) under the laws of the Grand-Duchy of Luxembourg on July 8, 2011. Our principal executive office is located at 4, rue Albert Borschette, L-1246, Luxembourg, telephone number +352 27 84 1600. The Company is registered with the Luxembourg Registre de Commerce et des Sociétés under number B162135.
Our History
Intelsat, Ltd., a Bermuda company, was the successor entity to the International Telecommunications Satellite Organization (the “IGO”). The IGO was a public intergovernmental organization created on an interim basis by its initial member states in 1964 and formally established in February 1973 upon entry into force of an intergovernmental agreement. The member states that were party to the treaty governing the IGO designated certain entities to market and use the IGO’s communications system within their territories and to hold investment share in the IGO.
The Privatization
In November 2000, the IGO’s Assembly of Parties unanimously approved our management’s specific plan for our privatization and set the date of privatization for July 18, 2001. On July 18, 2001, substantially all of the assets and liabilities of the IGO were transferred to Intelsat, Ltd., which was domiciled as a Bermuda company.
The IGO, referred to post-privatization as the International Telecommunications Satellite Organization (“ITSO”), was established and was to exist as an intergovernmental organization for a period of at least 12 years after July 18, 2001, and then could be terminated by a decision of a governing body of ITSO called the Assembly of Parties. The Assembly of Parties voted in 2012 to continue ITSO until at least 2021. Pursuant to a Public Services Agreement among ITSO, the Company and certain of our subsidiaries, we have an obligation to provide our services in a manner consistent with the core principles of global coverage and connectivity, lifeline connectivity and non-discriminatory access, and ITSO monitors our implementation of this obligation.
The Luxembourg Migration
On December 15, 2009, Intelsat, Ltd. and certain of its parent holding companies and subsidiaries migrated their jurisdiction of organization from Bermuda to Luxembourg (the “Migration”). As a result of the Migration, our headquarters are located in Luxembourg.
The Initial Public Offering
On April 23, 2013, we completed our initial public offering, in which we issued 22,222,222 common shares, and a concurrent public offering, in which we issued 3,450,000 5.75% Series A mandatory convertible junior non-voting preferred shares (the “Series A Preferred Shares”), at public offering prices of $18.00 and $50.00 per share, respectively (the initial public offering together with the concurrent public offering, the “IPO”). In May 2016, all of the outstanding Series A Preferred Shares were converted in accordance with their terms into common shares.
The Gogo Transaction
On December 1, 2020, we completed our acquisition of Gogo’s commercial aviation business. As a result of the Gogo Transaction, we became a direct provider of IFC services to commercial airlines and their customers.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934, as amended. You may obtain any reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.
You also may view and download copies of our SEC filings free of charge at our website, www.intelsat.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information contained on, or that can be accessed through, our website will not be deemed to be incorporated by reference in, and is not considered part of, this Annual Report on Form 10‑K. Investors should also note that we use our website, as well as SEC filings, press releases, and public conference calls, to announce financial information and other material developments regarding our business. We use these channels, as well as social media, to communicate with investors and members of the public about our business. It is possible that the information that we post on our social media channels could be deemed material information. We encourage investors, the media and others interested in our Company to review the information that we post on our social media channels.
Item 1A. Risk Factors
The risks described below are not the only ones that we may face. Additional risks that are not currently known to us or that we currently consider immaterial may also impair our business, financial condition or results of operations.
Risk Factor Summary
Risk Factors Relating to Our Business
•Significant competition from within the FSS sector could have a material adverse effect on our business and could prevent us from implementing our business strategy and expanding our operations as planned.
•The market for FSS may not grow or may shrink, and we may not be able to attract new customers, retain our existing customers or implement our strategies to grow our business, and pricing pressures may have an adverse impact on FSS sector revenue.
•Our business is capital intensive and requires us to make long-term capital expenditure decisions, and the adequacy of our capital resources is difficult to predict at this time.
•Our financial condition could be materially and adversely affected if we were to suffer a satellite loss that is not adequately covered by insurance.
•We may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
•We are subject to political, economic, regulatory and other risks due to the international nature of our operations.
•Our satellite business is subject to foreign currency risk.
•Serafina S.A. currently owns a significant amount of our common shares and may have conflicts of interest with us in the future.
•We have several large customers and the loss of, or default by, these customers could materially reduce our revenue and materially adversely affect our business.
•Reductions or changes in U.S. government spending, including the U.S. defense budget, could reduce our revenue and adversely affect our business.
•The loss of the services of key personnel could have a material adverse effect on our business.
•The COVID-19 pandemic has and will continue to adversely affect, our employees, suppliers, customers and end consumers, and has and will continue to have an adverse impact, on our business, financial condition and results of operations.
•Intelsat may fail to realize all of the anticipated benefits of the Gogo Transaction or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating Gogo’s commercial aviation business.
•We or our commercial aviation technology suppliers may be unable to continue to innovate and provide products and services that are useful to consumers and airlines, and the demand for in-flight broadband Internet access service may decrease or develop more slowly than we expect. We cannot predict with certainty the development of the U.S. or international in-flight broadband Internet access market or the market acceptance for our products and services.
•Our Gogo CA business involves possession and use of personal information and use of credit cards by users of our services, which present risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation and damage our reputation.
•Our Gogo CA business is dependent on agreements with airline partners to be able to access passengers and provide IFC services to airlines. We may not be able to timely realize the anticipated benefits from these agreements, renew existing agreements upon expiration or termination, successfully negotiate agreements with new airline partners, or maintain airline and passenger satisfaction with our equipment and services.
•Our business, and especially our Gogo CA business, could be adversely affected if we suffer cyber-attacks or other malicious activities on an aircraft, service interruptions or delays, technology or systems failures, or damage to our equipment. A future act or threat of terrorism or other event could result in reduced demand for our products and services or result in a prohibition on the use of Wi-Fi enabled devices on aircraft.
•Our Gogo CA business depends upon third parties, many of which are single-source providers, to manufacture equipment components, provide service for our network and install and maintain our equipment.
•We may not be able to protect our intellectual property rights, and any assertions by third parties of infringement, misappropriation or other violations by us of their intellectual property rights could result in significant costs.
Risk Factors Relating to Our Satellite Industry
•In-orbit satellite failures or degradations in performance could impair the commercial performance of our satellites.
•A launch failure or other satellite damage or destruction during launch could result in a total or partial satellite loss. A new satellite could also fail to reach its designated orbital location after launch.
•New or proposed satellites are subject to construction and launch delays.
•Our dependence on outside contractors could result in increased costs and delays related to the launch of our new satellites.
•A natural disaster could diminish our ability to provide communications service.
Risk Factors Relating to Regulation
•We are subject to the orbital slot and spectrum access requirements of the ITU and the regulatory and licensing requirements in each of the countries in which we provide services, operate facilities, or license terminals, and our business is sensitive to regulatory changes internationally and in those countries.
•Transparent and publicly available regulatory frameworks on frequency and telecommunication licensing may not be available in some jurisdictions.
•If we do not maintain regulatory authorizations for our existing satellites, associated ground facilities and terminals, services we provide, or obtain authorizations for our future satellites, associated ground facilities and terminals, and services we provide, we may not be able to operate our existing satellites or expand our operations.
•If we do not occupy unused orbital locations or use certain frequencies by specified deadlines, or do not maintain satellites in orbital locations we currently use, our rights and/or priority to use these orbital locations and associated frequencies may lapse or become available for other satellite operators to use.
•Coordination results may adversely affect our ability to use a satellite at a given orbital location in certain frequency bands for our proposed service or coverage area.
•Given the technical and operational challenges to clearing transmissions in the lower 300 MHz of the C-band spectrum in the contiguous U.S. on an accelerated basis, there is risk in our ability to meet the deadlines set forth in the FCC Final Order required to receive Acceleration Payments. If we were ultimately to fail to receive the Acceleration Payments, this could have a material and adverse effect on our financial condition and prospects.
•FCC and FAA regulation may increase our commercial aviation costs of providing service or require us to change our services.
•Our failure to maintain or obtain authorizations under U.S. export control and trade sanctions laws and regulations could have a material adverse effect on our business.
•If we do not maintain required security clearances from, and comply with our agreements with, the U.S. Department of Defense, or if we do not comply with U.S. law, we may not be able to perform our obligations under U.S. government contracts.
Risk Factors Relating to the Chapter 11 Proceedings
•We are subject to the risks and uncertainties associated with Chapter 11 proceedings.
•Operating under Bankruptcy Court protection for a long period of time may harm our business.
•The Chapter 11 Cases limit the flexibility of our management team in running our business.
•We may not be able to obtain confirmation of a Chapter 11 plan of reorganization, including the proposed Plan.
•Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
•The PSA is subject to significant conditions and milestones that may be difficult for us to satisfy.
•As a result of the Chapter 11 proceedings, our financial results may be volatile and may not reflect historical trends.
•We may be subject to claims that will not be discharged in the Chapter 11 proceedings, which could have a material adverse effect on our financial condition and results of operations.
•The Debtors may be unable to comply with restrictions imposed by the agreements governing the DIP Facility and the Debtors’ other financing arrangements.
•We may experience increased levels of employee attrition as a result of the Chapter 11 proceedings.
•In certain instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code or dismissed.
•Trading in our common shares during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks.
Risk Factors Relating to Our Business
We are subject to significant competition from within the FSS sector, from alternative satellite service providers and from other providers of communications capacity, such as fiber optic cable capacity. Competition from other telecommunications providers could have a material adverse effect on our business and could prevent us from implementing our business strategy and expanding our operations as planned.
We face significant competition in the FSS sector in different regions around the world. We compete against other satellite operators and against suppliers of ground-based communications capacity. The increasing availability of satellite capacity and capacity from other forms of communications technology has historically created an excess supply of telecommunications capacity in certain regions from time to time. We believe such an imbalance could again occur in certain regions, particularly as we and other operators introduce next generation HTS and SDS technology on our fleets. Additionally, there is emerging interest from new entrants to launch new constellations in different orbits that could potentially compete with portions of our business. Increased competition in the FSS sector could lower prices, which could reduce our operating margins and the cash available to fund our operations and service our debt obligations. In addition, there has been a trend toward consolidation of major FSS providers as customers increasingly demand more robust distribution platforms with network redundancies and worldwide reach, and we expect to face increased competition as a result of this trend. Our direct competitors are likely to continue developing and launching satellites with greater power and more transponders, which may create satellite capacity at lower costs. In order to compete effectively, we invest in similar technology.
We also believe that there are many companies that are seeking ways to improve the ability of existing land-based infrastructure, such as fiber optic cable, to transmit signals. Any significant improvement or increase in the amount of land-based capacity, particularly with respect to the existing fiber optic cable infrastructure and point-to-point applications, may cause our video and network services customers to shift their transmissions to land-based capacity or make it more difficult for us to obtain new customers. If fiber optic cable networks or other ground-based high-capacity transmission systems are available to service a particular point, that capacity, when available, is generally less expensive than satellite capacity. As land-based telecommunications services expand, demand for some satellite-based services may be reduced.
In addition, we face challenges to our business apart from these industry trends that our competition may not face. A portion of our revenue has historically been derived from channel services, and from other point-to-point services which comprise a portion of our transponder services. Because fiber optic cable capacity is generally available at lower prices than satellite capacity, competition from fiber optic cable providers has historically caused a migration of our point-to-point customers from satellite to fiber optic cable on certain routes, resulting in erosion in our revenue from point-to-point services over the last ten years. Some other FSS operators have service mixes that are less weighted towards point-to-point connectivity than our current service mix. We have been addressing this erosion and sustaining our business by expanding our customer base in point-to-multipoint services, such as video, and growing our presence in serving wireless communications providers and the mobility sector, such as our recent acquisition of Gogo’s commercial aviation business.
Failure to compete effectively with other FSS operators and to adapt to new competition and new technologies or failure to implement our business strategy while maintaining our existing business could result in a loss of revenue and a decline in profitability, a decrease in the value of our business and a downgrade of our credit ratings, which could restrict our access to the capital markets.
The market for FSS may not grow or may shrink, and therefore we may not be able to attract new customers, retain our existing customers or implement our strategies to grow our business. In addition, pricing pressures may have an adverse impact on FSS sector revenue.
The FSS sector, as a whole, has experienced growth over the past few years. However, the future market for FSS may not grow or may shrink. Competing technologies, such as fiber optic cable, continue to adversely affect the point-to-point segment of the FSS sector. In the point-to-multipoint segment, economic downturns, the transition of video traffic from analog to digital and continuing improvements in compression technology, which allow for improved transmission efficiency, have negatively impacted demand for certain fixed satellite services. Developments that we expect to support the growth of the satellite services industry, such as continued growth in data traffic and the proliferation of DTH platforms, HDTV and niche programming, may fail to materialize or may not occur in the manner or to the extent we anticipate. Any of these industry dynamics could negatively affect our operations and financial condition.
Because the market for FSS may not grow or may shrink, we may not be able to attract customers for the services that we are providing as part of our strategy to sustain and grow our business. Reduced growth in the FSS sector may also adversely affect our ability to retain our existing customers. A shrinking market could reduce the number and value of our customer contracts and would have a material adverse effect on our business and results of operations. In addition, there could be a substantial negative impact on our credit ratings and our ability to access the capital markets.
The FSS sector has in the past experienced periods of pricing pressures that have resulted in reduced revenues of FSS operators. Current pricing pressures and potential pricing pressures in the future could have a significant negative impact on our revenues and financial condition.
Our business is capital intensive and requires us to make long-term capital expenditure decisions, and the adequacy of our capital resources is difficult to predict at this time.
Implementation of our business strategy requires a substantial outlay of capital. As we pursue our business strategies and seek to respond to opportunities and trends in our industry, our actual capital expenditures may differ from our expected capital expenditures. The nature of our business also requires us to make capital expenditure decisions in anticipation of customer demand, and we may not be able to correctly predict customer demand. We have only a fixed amount of transponder capacity available to serve a particular region. If our customer demand exceeds our transponder capacity, we may not be able to fully capture the growth in demand in the region served by that capacity. We currently expect to use cash on hand, cash flows from operations, borrowings under our DIP Facility (as defined in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Voluntary Reorganization under Chapter 11), and exit financing contemplated by the Plan upon our emergence from Chapter 11 to fund our most significant cash outlays, including capital expenditures, in 2021. While we expect to receive Acceleration Payments provided for under the FCC Final Order, our satisfaction of the deadlines and other conditions to receive such payments cannot be guaranteed. If we determine we need to obtain additional funds through external financing and are unable to do so, we may be prevented from fully implementing our business strategy.
The availability and cost to us of external financing depend on a number of factors, including general market conditions, our financial performance and our credit rating. Both our credit rating and our ability to obtain financing generally may be influenced by the supply and demand characteristics of the telecommunications sector in general and of the FSS sector in particular. Declines in our expected future revenue under contracts with customers and challenging business conditions faced by our customers are among factors that may adversely affect our credit. Other factors that could impact our credit include the amount of debt in our current capital structure, activities associated with our strategic initiatives, our expected future cash flows and the capital expenditures required to execute our business strategy. In addition, see—Risks Related to Chapter 11 Proceedings below for additional factors that could impact our credit. The overall impact on our financial condition of any transaction that we pursue may be negative or may be negatively perceived by the financial markets and ratings agencies and may result in adverse rating agency actions with respect to our credit rating. A disruption in the capital markets, a deterioration in our financial performance or a credit rating downgrade could limit our ability to obtain financing or could result in any such financing being available only at greater cost or on more restrictive terms than might otherwise be available. Our debt agreements also impose restrictions on our operation of our business and could make it more difficult for us to obtain further external financing if required (see—The Debtors may be unable to comply with restrictions imposed by the agreements governing the DIP Facility and the Debtors’ other financing arrangements).
Long-term disruptions in the capital and credit markets as a result of uncertainty due to recessions, changing or increased regulation or failures of significant financial institutions could adversely affect our access to capital. If financial market disruptions intensify, it may become difficult for us to raise additional capital or refinance debt when needed, on acceptable terms or at all. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures and reducing or eliminating other discretionary uses of cash, which could adversely impact our business and our ability to execute our business strategies.
Our financial condition could be materially and adversely affected if we were to suffer a satellite loss that is not adequately covered by insurance.
We currently carry in-orbit insurance only with respect to a small portion of our satellite fleet, generally for a short period of time following launch. As of December 31, 2020, two of the 52 satellites in our fleet were covered by in-orbit insurance. Amounts recoverable from in-orbit insurance coverage may initially be comparable to amounts recoverable with respect to launch insurance coverage; however, such amounts generally decrease over time and are typically based on our declining potential repayment obligations with respect to certain customer prepayments made prior to or during the manufacture of certain satellites, or the declining book value of the satellite.
As our satellite insurance policies expire, we may elect to reduce or eliminate insurance coverage relating to certain of our satellites to the extent permitted by our debt agreements if, in our view, exclusions make such policies ineffective or the costs of coverage make such insurance impractical and we believe that we can more reasonably protect our business through the use of in-orbit spare satellites, backup transponders and self-insurance. A partial or complete failure of a revenue-producing satellite, whether insured or not, could require additional, unplanned capital expenditures, an acceleration of planned capital expenditures, interruptions in service, a reduction in contracted backlog and lost revenue and could have a material adverse effect on our business, financial condition and results of operations. We do not currently insure against lost revenue in the event of total or partial loss of a satellite.
We also maintain third-party liability insurance on some of our satellites to cover damage caused by our satellites. This insurance, however, may not be adequate or available to cover all third-party liability damages that may be caused by any of our satellites, and we may not in the future be able to renew our third-party liability coverage on reasonable terms and conditions, if at all.
We may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
Intelsat S.A. and certain of its subsidiaries are Luxembourg-based companies and are subject to Luxembourg taxation for corporations. We believe that a significant portion of the income derived from our communications network will not be subject to tax in certain countries in which we own assets or conduct activities or in which our customers are located, including the United States and the United Kingdom. However, this belief is based on the presently anticipated nature and conduct of our business and on our current position under the tax laws of the countries in which we own assets or conduct activities. This position is subject to review and possible challenge by taxing authorities and to possible changes in law that may have a retroactive effect.
In addition, we conduct business with customers and counterparties in multiple countries and jurisdictions. Our overall tax burden is affected by tax legislation in these jurisdictions and the terms of income tax treaties between these countries and the countries in which our subsidiaries are qualified residents for treaty purposes as in effect from time to time. Tax legislation in these countries and jurisdictions may be amended and treaties are regularly renegotiated by the contracting countries and, in each case, may change. If tax legislation or treaties were to change, we could become subject to additional taxes, including retroactive tax claims or assessments of withholding on amounts payable to us or other taxes assessed at the source, in excess of the taxation we anticipate based on business contracts and practices and the current tax regimes. The extent to which certain taxing jurisdictions may require us to pay tax or to make payments in lieu of tax cannot be determined in advance. Our results of operations could be materially adversely affected if we become subject to a significant amount of unanticipated tax liabilities.
We are subject to political, economic, regulatory and other risks due to the international nature of our operations.
We provide communications services in approximately 200 countries and territories. Accordingly, we may be subject to greater risks than other companies as a result of the international nature of our business operations. We could be harmed financially and operationally by tariffs, taxes, government sanctions and regulatory actions, and other trade barriers that may be imposed on our services, or by political and economic instability in the countries in which we provide services, for instance in countries heavily reliant on revenues from natural resources. If we ever need to pursue legal remedies against our customers or our business partners located outside of Luxembourg, the United States or the United Kingdom, it may be difficult for us to enforce our rights against them depending on their location.
Substantially all of our ongoing technical operations are conducted and/or managed in the United States, Luxembourg and Germany. However, providers of satellite launch services, upon which we are reliant to place our satellites into orbit, locate their operations in other countries, including Kazakhstan. Political disruptions in this country could increase the risk of launching the satellites that provide capacity for our operations, which could result in financial harm to us.
Our satellite business is subject to foreign currency risk.
Almost all of our satellite business customers pay for our services in U.S. dollars, although we are exposed to some risk related to satellite business customers who do not pay in U.S. dollars. Fluctuations in the value of non-U.S. currencies may make payment in U.S. dollars more expensive for our non-U.S. customers, and in certain circumstances, cause us to renegotiate prices or other terms in contracts in order to retain such customers. For instance, our Russian and Venezuelan customers and others may face difficulties
paying for our services because of recent deterioration in their respective currencies and the relative strength of the U.S. dollar compared to many other currencies. In addition, our non-U.S. customers may have difficulty obtaining U.S. currency and/or remitting payment due to currency exchange controls.
Serafina S.A. currently owns a significant amount of our common shares and may have conflicts of interest with us in the future.
Serafina S.A. holds in the aggregate approximately 34% of our common shares. We expect, until the conclusion of our Chapter 11 Cases, by virtue of its share ownership, Serafina S.A. may be able to influence decisions to enter into any corporate transaction or other matter that requires the approval of shareholders. Additionally, Serafina S.A. is in the business of making investments in companies and, although it does not currently hold interests in any business that competes directly or indirectly with us, it may from time to time acquire and hold interests in businesses that compete with us. Serafina S.A. may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
We have several large customers and the loss of, or default by, these customers could materially reduce our revenue and materially adversely affect our business.
A limited number of customers provide a substantial portion of our revenue and contracted backlog. For the year ended December 31, 2020, our ten largest customers and their affiliates represented approximately 42% of our revenue. The loss of, or default by, our larger customers could adversely affect our current and future revenue and operating margins.
Some customers have in the past defaulted and, although we monitor our larger customers’ financial performance and seek deposits, guarantees and other methods of protection against default where possible, our customers may in the future default on their obligations to us due to bankruptcy, lack of liquidity, operational failure, devaluation of local currency or other reasons. Defaults by any of our larger customers or by a group of smaller customers who, collectively, represent a significant portion of our revenue could adversely affect our revenue, operating margins and cash flows. If our contracted backlog is reduced due to the financial difficulties of our customers, our revenue, operating margins and cash flows would be further negatively impacted.
Reductions or changes in U.S. government spending, including the U.S. defense budget, could reduce our revenue and adversely affect our business.
The U.S. government, through the U.S. Department of Defense and other agencies, is one of our largest customers. Spending authorizations for defense-related and other programs by the U.S. government have fluctuated in the past, and future levels of expenditures and authorizations for these programs may decrease, remain constant or shift to programs in areas where we do not currently provide services. We provide services to the U.S. government and its agencies through contracts that are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal year basis, even though contract performance may extend over many years. In recent years, there has been a pattern of delays in the finalization and approval of the U.S. government budget, which can create uncertainty over the extent of future U.S. government demand for our services. Furthermore, in light of geopolitical uncertainty surrounding the level of U.S. operational presence in Iraq, Afghanistan and potentially the Middle East more generally, there may be future declines in the U.S. government’s demand for and use of our services. To the extent the U.S. government and its agencies reduce spending on commercial satellite services, this could adversely affect our revenue and operating margins.
The loss of the services of key personnel could have a material adverse effect on our business.
Our executive officers and other members of our senior management have been a critical element of our success. These individuals have substantial experience and expertise in our business and have made significant contributions to its growth and success. We have entered into employment agreements with each of our executive officers other than Jonathan B. Cobin, our Chief Strategy Officer, Bruno Fromont, our Chief Technology Officer and John Wade, our President, Commercial Aviation. We have employment agreements with Stephen Spengler, our Chief Executive Officer, David Tolley, our Chief Financial Officer, Samer Halawi, our Chief Commercial Officer, Michelle Bryan, our General Counsel and Chief Administrative Officer, and Michael DeMarco, our Chief Services Officer, and certain targeted retention mechanisms; however, these agreements and mechanisms do not guarantee that these executives will remain with us. Further, a prolonged period of operating under Bankruptcy Court protection in connection with our Chapter 11 proceedings may also make it more difficult to retain management and other key personnel necessary to the success and growth of our business. The unexpected loss of services of one or more of our executive officers or members of senior management could have a material adverse effect on our business.
The COVID-19 pandemic has had a material impact on the U.S. and global economies and has adversely affected, and will continue to adversely affect, our employees, suppliers, customers and end consumers, which has had an adverse impact, and will continue to have an adverse impact, on our business, financial condition and results of operations.
The World Health Organization has declared the outbreak of COVID-19 a pandemic and public health emergency of international concern. In March 2020, the President of the United States declared a State of National Emergency due to the pandemic. Other countries affected by the outbreak took similar measures. In addition, many jurisdictions have limited, and are considering to further limit, social mobility and gathering. As the COVID-19 pandemic develops, governments (at national, state and local levels), corporations and other authorities may continue to implement restrictions or policies that have and may continue to adversely impact consumer spending, global capital markets, and the global economy, all of which could have a materially adverse impact on our business, financial condition and results of operations.
A prolonged pandemic and/or economic downturn in the United States or the other markets in which we operate or in which we compete have and may continue to result in:
•significant reductions in demand for our services due to the impact of the pandemic and resulting economic downturn affecting our customers;
•significant decreases in demand for air travel, air travel restrictions and capacity reductions, and the deterioration in economic conditions for our airline partners have had and may continue to have a materially adverse effect on our business prospects and financial condition for our commercial aviation business;
•significant changes in the political conditions in our markets, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our facilities, restrict our employees’ ability to travel or perform necessary business functions, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for delivering our services, may adversely impact our results; and
•continued disruptions in the U.S. capital markets.
The ultimate extent of the COVID-19 outbreak and its impact on our business, results of operations and financial condition in the future is highly uncertain and cannot be predicted. In addition, the continuation or resurgence of the COVID-19 pandemic could exacerbate the other risks identified herein.
We may not be able to protect our intellectual property rights, and any assertions by third parties of infringement, misappropriation or other violations by us of their intellectual property rights could result in significant costs and materially adversely affect our business and financial condition.
We regard our intellectual property, trade secrets and proprietary technologies as important to the success of our business. We have developed certain ideas, processes, and methods that contribute to our success and competitive position that we consider to be trade secrets. We protect our trade secrets by keeping them confidential through the use of internal and external controls, including contractual protections with employees, contractors, customers and vendors. Trade secrets can be protected for an indefinite period so long as their secrecy is maintained, but we can provide no assurances that such secrecy will be maintained due to factors outside of the Company’s control.
While we have obtained patent protection for certain of our technologies in the U.S. and certain other jurisdictions, we have not yet obtained registrations for our intellectual property in all markets in which we do business or may do business in the future, and we may have difficulty in registering, or enforcing an exclusive right to use, our intellectual property in those jurisdictions. The intellectual property laws and enforcement practices of certain non-U.S. jurisdictions may not protect our intellectual property rights to the same extent as the laws of the United States. In addition, there can be no assurance that the efforts we have taken to protect our intellectual property and proprietary rights will be effective, and if we are unable to protect our intellectual property from unauthorized use, our ability to exploit our proprietary technology or our brand image may be harmed.
Further, our business has faced, is currently facing and may in the future face claims that we or a supplier or customer have violated patent, trademark or other intellectual property rights of third parties. Any infringement, misappropriation or related claims, whether or not meritorious and whether or not they result in litigation, may be costly to resolve or unavailable on terms acceptable to us, and we may have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease providing certain products or services, adjust our merchandizing or marketing and advertising activities or take other actions to resolve the claims, which may materially adversely affect our business and financial condition.
Intelsat may fail to realize all of the anticipated benefits of the Gogo Transaction or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating Gogo’s commercial aviation business.
Our ability to realize the anticipated benefits of the Gogo Transaction will depend, to a large extent, on our ability to integrate Gogo’s commercial aviation business. The combination of two independent businesses is a complex, costly and time-consuming
process, particularly while we are undergoing the Chapter 11 proceedings. Further, the restrictions posed by the agreements governing our DIP Facility may limit our ability to integrate the two businesses. As a result, we will be required to devote significant management attention and resources to integrate the business practices and operations of Intelsat and Gogo’s commercial aviation business. The integration process may disrupt the businesses and, if implemented ineffectively, would restrict the realization of the full expected benefits. The failure to meet the challenges involved in integrating the two businesses and to realize the anticipated benefits of the potential transaction could cause an interruption of, or a loss of momentum in, the activities of the combined businesses and could adversely affect the results of operations of the combined businesses.
In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customers and other business relationships, and diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:
•the diversion of management’s attention to integration matters;
•difficulties in achieving anticipated cost savings, business opportunities and growth prospects from the combination;
•difficulties in the integration of operations and systems;
•conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the two companies;
•difficulties in the assimilation of employees;
•difficulties in managing the expanded operations of a significantly larger and more complex company;
•challenges in keeping existing customers and obtaining new customers;
•challenges in attracting and retaining key personnel; and
•coordinating a geographically dispersed organization, particularly due to the effects of the COVID-19 pandemic.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact the business, financial condition and results of operations of the combined company. In addition, even if Gogo’s commercial aviation business operations are integrated successfully, the full benefits of the transaction and other pending acquisitions may not be realized, including the cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration of the businesses. As a result, it cannot be assured that the Gogo Transaction will result in the realization of the full benefits anticipated from such transaction.
We or our commercial aviation technology suppliers may be unable to continue to innovate and provide products and services that are useful to consumers and airlines, and the demand for in-flight broadband Internet access service may decrease or develop more slowly than we expect. We cannot predict with certainty the development of the U.S. or international in-flight broadband Internet access market or the market acceptance for our products and services.
The market for our commercial aviation services is characterized by evolving technology, changes in aviation partner and passenger needs and frequent new service and product introductions. Our success will depend, in part, on our and our suppliers’ ability to continue to enhance existing technology and services or develop new technology and services for both passenger and aircraft operational use on a timely and cost-effective basis. If we or our suppliers fail to adapt quickly enough to changing technology, aviation partner and passenger requirements and/or regulatory requirements, the results of operations for our commercial aviation business may be materially adversely affected.
Our future success depends upon growing demand for in-flight broadband Internet access services, which is inherently uncertain. We have invested significant resources in the deployment of new systems and service offerings, which represent a substantial part of our growth strategy. We face the risk that the U.S. and international demand for in-flight broadband Internet access services may decrease or develop more slowly or differently than we currently expect, or that our services, including our new offerings, may not achieve widespread market acceptance. We may be unable to market and sell our services successfully and cost-effectively to a sufficiently large number of aviation partners.
Our Gogo CA business involves the possession and use of personal information and the use of credit cards by users of our services, which present risks and expenses that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to costly litigation and damage our reputation.
In the ordinary course of our Gogo CA business, we or our third-party providers collect, process and store sensitive data, including personal information of aircraft passengers and our employees and credit card information. The secure processing, maintenance and transmission of this information (and other sensitive data such as our proprietary business information and that of our customers and suppliers) is critical to our operations and business strategy. We depend on the security of our networks and, in part, on the security of the network infrastructures of our third-party providers of telecommunications, cloud computing, customer support and payment processing services, and other vendors. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or compromised due to employee error, malfeasance, hardware or software defects or other disruptions. Further, our in-cabin network operates as an open, unsecured Wi-Fi hotspot, and non-encrypted transmissions users send
over this network may be vulnerable to access by other users on the same plane. Data security threats are constantly evolving and may be difficult to anticipate or to detect for long periods of time. There can be no assurance that any security measures we, or third parties, take will be effective in preventing these activities, given the constantly changing nature of the threats. Any such security incidents could result in legal claims or proceedings and liability under our contracts with airline partners, and may disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, all of which may have a material adverse effect on our business prospects and results of operations for our Gogo CA business.
Failure to protect confidential user data or to provide users with adequate notice of our privacy policies could also subject us to investigations and regulatory penalties imposed by U.S. federal and state regulatory agencies, non-U.S. regulatory agencies or courts. In addition, we must comply with certain FCC privacy and data security rules promulgated under the Communications Act of 1934, as amended, for our voice services, including certain provisions applicable to customer proprietary network information, and certain U.S. states have also enacted specific privacy laws to which we may be subject, including the CCPA, which took effect in January 2020. Other countries in which we may operate or from which our services may be offered, also have certain privacy and data security requirements that may apply to our business, either now or in the future. For example, the EU’s GDPR has imposed restrictive privacy-related requirements.
Despite the substantial preparation and related expenditures that we have undertaken to comply with the GDPR, there can be no assurance that we are or will continue to be in compliance. The regulation of data privacy and security in the EU and in other jurisdictions continues to evolve, and it is not possible to predict the ultimate effect of evolving regulation and implementation over time. Our failure to comply with GDPR, CCPA or other privacy or data security-related laws, rules or regulations imposed by U.S. federal or state governments or agencies or foreign governments or agencies could result in material penalties imposed by regulators or cause us to be in material breach under our airline agreements, which may have a material adverse effect on our business and results of operations for our Gogo CA business.
Our Gogo CA business is dependent on agreements with airline partners to be able to access passengers and provide IFC services to airlines. Our failure to timely realize the anticipated benefits from these agreements, renew existing agreements upon expiration or termination, successfully negotiate agreements with new airline partners, or maintain airline and passenger satisfaction with our equipment and services, may have a material adverse effect on our business prospects and results of operations for our commercial aviation business.
We have no assurance that any of our current airline partners will renew their existing contracts with us upon expiration, or that they will not terminate their contracts prior to expiration upon the occurrence of certain contractually stipulated events. To the extent that our airline partners terminate or fail to renew their contracts with us, our business prospects and results of operations for our Gogo CA business may be materially adversely affected. If our airline partners are not satisfied with our equipment or our IFC services for any reason, they may reduce efforts to co-market our services to their passengers, which together with passenger dissatisfaction, could harm our reputation among passengers and other airlines, and result in lower passenger usage and reduced revenue. In addition, we are currently in negotiations or discussions with certain existing airline partners and potential airline partners to provide our equipment and IFC services on their fleets. Such negotiations require substantial time, effort and resources, and these efforts may not be successful. Failures in our negotiations could harm our results of operations for our Gogo CA business. Further, the terms of any future agreements could be materially different and less favorable to us than the terms included in our existing agreements.
Our Gogo CA business depends upon third parties, many of which are single-source providers, to manufacture equipment components, provide service for our network and install and maintain our equipment.
Our Gogo CA business depends upon third parties, many of which are single-source providers, to manufacture equipment components, provide services for our commercial aviation network and install and maintain our equipment. We rely on third-party suppliers for equipment components and services that we use to provide our in-flight connectivity services. Many suppliers of critical components of our equipment are single-source providers. Components for which we rely on single-source suppliers include, among others, the antennas and modems for all systems, the radomes for our satellite systems and services related to third-party ATG network access. In our Gogo CA business, installation and maintenance of our airborne equipment is performed by employees of third-party service providers with whom we contract, and in some cases, by our airline partners, third-party service providers with whom the airline partners contract, or original equipment manufacturers. If there is an equipment failure, including due to problems with the installation or maintenance processes, our reputation and our relationships with our customers could be harmed.
Our business, and especially our Gogo CA business, could be adversely affected if we suffer cyber-attacks or other malicious activities on an aircraft, service interruptions or delays, technology or systems failures, or damage to our equipment. A future act or threat of terrorism or other event could result in reduced demand for our products and services or result in a prohibition on the use of Wi-Fi enabled devices on aircraft.
Our brand, reputation and ability to attract, retain and serve customers depend upon the performance, reliability and security of our commercial aviation network. Cyber-attacks or other malicious activities on an aircraft, service interruptions or delays, technology
or systems failures, or damage to our equipment may occur due to factors beyond our control and could harm our reputation, brand and ability to attract, retain and serve customers, resulting in lost revenue. Such events could be material breaches of airline contracts resulting in termination rights, penalties or airline claims for damages. In addition, a future act or threat of terrorism or unrelated airline accidents could have an adverse effect on the airline industry and result in significantly reduced passenger demand for air travel. The U.S. or other governments could respond to such events by prohibiting the use of Wi-Fi enabled devices on aircraft, which may eliminate demand for certain of our products and services and have a material adverse effect on our financial condition and results of operations.
Risk Factors Relating to Our Satellite Industry
We may experience in-orbit satellite failures or degradations in performance that could impair the commercial performance of our satellites, which could lead to lost revenue, an increase in our cash operating expenses, lower operating income or lost backlog.
Satellites utilize highly complex technology and operate in the harsh environment of space and, accordingly, are subject to significant operational risks while in orbit. These risks include malfunctions, commonly referred to as anomalies that have occurred in our satellites and the satellites of other operators as a result of:
•the satellite manufacturer’s error, whether due to the use of new and largely unproven technology or due to a design, manufacturing or assembly defect that was not discovered before launch, including:
◦failure of components from inadvertent susceptibility to the harshest space weather conditions; and/or
•problems with the power systems of the satellites, including:
◦circuit failures or other array degradation causing reductions in the power output of the solar arrays on the satellites, which could cause us to lose some of our capacity, require us to forego the use of some transponders initially and to turn off additional transponders in later years; and/or
•failure or other degradation of the cells within the batteries, whose sole purpose is to power the payload and spacecraft operations during the daily eclipse periods which occur for brief periods of time during two 40-day periods around March 21 and September 21 of each year; and/or
•problems with the control systems of the satellites, including:
◦failure of the command or telemetry processing units; and/or
◦failure of the primary and/or backup SCP; and/or
◦failure of one or more earth sensors, star trackers, gyroscope and/or associated electronics that are used to provide satellite attitude information; and/or
◦failure of the control wheel actuators; and/or
•problems with the propulsion systems of the satellites, including:
◦failure of the primary and/or backup chemical thrusters; and/or
◦failure of the XIPS used on certain Boeing satellites, which is an electronic propulsion system that maintains the spacecraft’s proper in-orbit position; and/or
◦propellant leaks from lines or thrusters; and/or
•problems associated with strikes from micrometeoroids or space orbit debris; and/or
•general failures resulting from operating satellites in the harsh space environment, such as premature component failure or wear out of mechanisms exceeding available redundancy.
We have experienced anomalies in each of the categories described above. Although we work closely with the satellite manufacturers to determine and eliminate the cause of these anomalies in new satellites and provide for on-satellite backups for certain critical components to minimize or eliminate service disruptions in the event of failure, we may experience anomalies in the future, whether of the types described above or arising from the failure of other systems or components. These anomalies can manifest themselves in scale from minor reductions of equipment redundancy to marginal reductions in capacity to complete satellite failure. Some of our satellites have experienced significant anomalies in the past and some have components that are now known to be susceptible to similar significant anomalies. Each of these is discussed in Item 1—Business—Business Overview—Satellite Health and Technology. An on-satellite backup for certain components may not be available upon the occurrence of such an anomaly.
Any single anomaly or series of anomalies could materially and adversely affect our operations, our revenues, our relationships with our current customers and our ability to attract new customers for our satellite services. In particular, future anomalies may result in the loss of individual transponders on a satellite, a single beam or multiple beams, a group of transponders on that satellite or the entire satellite, depending on the nature of the anomaly and the availability of on-satellite backups. Anomalies and our estimates of their future effects may also cause a reduction of the expected service life of a satellite and contracted backlog. Anomalies may also cause a reduction of the revenue generated by that satellite or the recognition of an impairment loss, and in some circumstances could lead to claims from third parties for damages, if a satellite experiencing an anomaly were to cause physical damage to another satellite, create interference to the transmissions on another satellite, cause other satellite operators to incur expenses to avoid such physical damage or interference or lower operating income as a result of an impairment charge. Finally, the occurrence of anomalies may adversely affect our ability to insure our satellites at commercially reasonable premiums, if at all. While some anomalies are covered
by insurance policies, others are not or may not be covered. See—Risk Factors Relating to Our Business—Our financial condition could be materially and adversely affected if we were to suffer a satellite loss that is not adequately covered by insurance.
Our Galaxy 15 satellite experienced an anomaly in April 2010 resulting in our inability to command the satellite. We transitioned all media traffic on this satellite to our Galaxy 12 satellite, which was our designated in-orbit spare satellite for the North America region. Galaxy 15 is a Star-2 satellite manufactured by Northrup Grumman Innovation Systems (“NGIS”). On December 23, 2010, we recovered command of the spacecraft and subsequently completed diagnostic testing and uploading of software updates that protect against future anomalies of this type. As of December 31, 2020, Galaxy 15 continued to provide normal service.
We may also experience additional anomalies relating to the failure of the SCP in our BSS 601 satellite, various anomalies associated with XIPS in our BSS 601 HP satellites or a progressive degradation of the solar arrays in certain of our BSS 702 satellites.
Three of the BSS 601 satellites that we operated in the past, as well as BSS 601 satellites operated by others, have experienced a failure of the primary and backup SCPs. On February 1, 2010, our Intelsat 4 satellite experienced an anomaly of its backup SCP and was taken out of service. This event did not have a material impact on our operations or financial results. As of December 31, 2020, we operated only one BSS 601 satellite, Intelsat 26.
Certain of the BSS 601 HP satellites have experienced various problems associated with their XIPS. We currently operate four BSS 601 HP satellites of this type, three of which have experienced failures of both XIPS and the other has experienced a partial loss of its XIPS. We may in the future experience similar problems associated with XIPS or other propulsion systems on our satellites.
Two of the three BSS 702 HP satellites that we operate, as well as BSS 702 HP satellites of a similar design operated by others, have experienced a progressive degradation of their solar arrays causing a reduction in output power. Along with the manufacturer, we continually monitor the problem to determine its cause and its expected effect. The power reduction may require us to permanently turn off certain transponders on the affected satellites to allow for the continued operation of other transponders, which could result in a loss of revenues, or may result in a reduction of the satellite’s service life. In 2004, based on a review of available data, we reduced our estimate of the service lives of both satellites due to the continued degradation.
On April 22, 2011, our Intelsat 28 satellite, formerly known as the Intelsat New Dawn satellite, was launched into orbit. Subsequent to the launch, the satellite experienced an anomaly during the deployment of its west antenna reflector, which controls communications in the C-band frequency. The anomaly had not been experienced previously on other STAR satellites manufactured by NGIS, including those in our fleet. The New Dawn joint venture filed a partial loss claim with its insurers relating to the C-band antenna reflector anomaly and all of the insurance proceeds from the partial loss claim were received in 2011. The Ku-band antenna reflector deployed and that portion of the satellite is operating as planned, entering service in June 2011. A Failure Review Board established to determine the cause of the anomaly completed its investigation in July 2011 and concluded that the deployment anomaly of the C-band reflector was most likely due to a malfunction of the reflector sunshield. As a result, the sunshield interfered with the ejection release mechanism, and prevented the deployment of the C-band antenna. The Failure Review Board also recommended corrective actions for Orbital Sciences Corporation satellites not yet launched to prevent reoccurrence of the anomaly. Appropriate corrective actions were implemented on Intelsat 18, which was successfully launched in October 2011, and on Intelsat 23, which was launched in October 2012.
During launch operations of Intelsat 19 on June 1, 2012, the satellite experienced damage to its south solar array. Although both solar arrays are deployed, the power available to the satellite is less than is required to operate 100% of the payload capacity. The Independent Oversight Board, formed by SSL and Sea Launch to investigate the solar array deployment anomaly, concluded that the anomaly occurred before the spacecraft separated from the launch vehicle during the ascent phase of the launch, and originated in one of the satellite’s two solar array wings due to a rare combination of factors in the panel fabrication that was unrelated to the launch vehicle. While the satellite is operational, the anomaly resulted in structural and electrical damage to one solar array wing, which reduced the amount of power available for payload operation. Additionally, we filed a partial loss claim with our insurers relating to the solar array anomaly. We received $84.8 million of insurance proceeds related to the claim in 2013. As planned, Intelsat 19 replaced Intelsat 8 at 166°E, in August 2012.
During orbit raising of Intelsat 33e in September 2016, the satellite experienced a malfunction of the main satellite thruster. Orbit raising was subsequently completed using a different set of satellite thrusters. The anomaly resulted in a delay of approximately three months in reaching the geostationary orbit, as well as a reduction in the projected lifetime of the satellite. Intelsat 33e entered service in January 2017. In addition, in February 2017, measurements indicated higher than expected fuel use while performing station-keeping maneuvers. There is no evidence of any impact to the communications payload. A Failure Review Board completed its investigation of the primary thruster failure and fuel use anomalies and identified several design, build and screening improvements that are being implemented by the satellite manufacturer for future satellites using the same engine. In addition, the manufacturer has adapted its propellant estimation software for both anomalies, which we take into account in making our end of life prediction.
In April 2019, the Intelsat 29e satellite (in service since 2016) experienced an anomaly that resulted in a total loss of the satellite. A Failure Review Board comprised of the satellite’s manufacturer, Boeing Satellite Systems, Inc., the Company and external independent experts was convened to complete a comprehensive analysis of the cause of the anomaly. The board concluded that the
anomaly was either caused by a harness flaw in conjunction with an electrostatic discharge event related to solar weather activity, or the impact of a micrometeoroid.
We may experience a launch failure or other satellite damage or destruction during launch, which could result in a total or partial satellite loss. A new satellite could also fail to reach its designated orbital location after launch. Any such loss of a satellite could negatively impact our business plans and could reduce our revenue.
Satellites are subject to certain risks related to failed launches. Launch failures result in significant delays in the deployment of satellites because of the need both to construct replacement satellites, which can take 24 months or longer, and to obtain other launch opportunities. Such significant delays could materially and adversely affect our operations and our revenue. In addition, significant delays could give customers who have purchased or reserved capacity on that satellite a right to terminate their service contracts relating to the satellite. We may not be able to accommodate affected customers on other satellites until a replacement satellite is available. A customer’s termination of its service contracts with us as a result of a launch failure would reduce our contracted backlog. Delays caused by launch failures may also preclude us from pursuing new business opportunities and undermine our ability to implement our business strategy.
Launch vehicles may also under-perform, in which case the satellite may still be placed into service by using its onboard propulsion systems to reach the desired orbital location, resulting in a reduction in its service life. In addition, although we have had launch insurance on all of our launches to date, if we were not able to obtain launch insurance on commercially reasonable terms and a launch failure were to occur, we would directly suffer the loss of the cost of the satellite and related costs, which could be more than $300 million.
On February 1, 2013, the launch vehicle for our Intelsat 27 satellite failed shortly after liftoff and the satellite was completely destroyed. A Failure Review Board was established and subsequently concluded that the launch failed due to the mechanical failure of one of the first stage engine’s thrust control components. The satellite and launch vehicle were fully insured, and all of the insurance proceeds from the loss claim were received in 2013.
Since 1980, we and the entities we have acquired have launched 125 satellites. Including the Intelsat 27 satellite, seven of these satellites were destroyed as a result of launch failures, all but one of which occurred prior to 2000. In addition, certain launch vehicles that we have used or are scheduled to use have experienced launch failures in the past. Launch failure rates vary according to the launch vehicle used.
New or proposed satellites are subject to construction and launch delays, the occurrence of which can materially and adversely affect our business, operating results and financial condition.
The construction and launch of satellites are subject to certain delays. Such delays can result from delays in the construction of satellites and launch vehicles, the periodic unavailability of reliable launch opportunities, possible delays in obtaining regulatory approvals and launch failures. We have in the past experienced delays in satellite construction and launch which have adversely affected our operations. Future delays may have the same effect. A significant delay in the future delivery of any satellite may also adversely affect our marketing plan for the satellite. If satellite construction schedules are not met, a launch opportunity may not be available at the time a satellite is ready to be launched. Further, any significant delay in the commencement of service of any of our satellites could enable customers who pre-purchased or agreed to utilize transponder capacity on the satellite to terminate their contracts and could affect our plans to replace an in-orbit satellite prior to the end of its service life. The failure to implement our satellite deployment plan on schedule could have a material adverse effect on our financial condition and results of operations. Delays in the launch of a satellite intended to replace an existing satellite that result in the existing satellite reaching its end of life before being replaced could result in loss of business to the extent an in-orbit backup is not available.
Our dependence on outside contractors could result in increased costs and delays related to the launch of our new satellites, which would in turn adversely affect our business, operating results and financial condition.
There are a limited number of companies that we are able to use to launch our satellites and a limited number of commercial satellite launch opportunities available in any given time period. Adverse events with respect to our launch service providers, such as satellite launch failures or financial difficulties (which some of these providers have previously experienced), could result in increased costs or delays in the launch of our satellites. General economic conditions may also affect the ability of launch providers to provide launch services on commercially reasonable terms or to fulfill their obligations in terms of launch dates, pricing, or both. In the event that our launch service providers are unable to fulfill their obligations, we may have difficulty procuring alternative services in a timely manner and may incur significant additional expenses as a result. Any such increased costs and delays could have a material adverse effect on our business, operating results and financial condition.
A natural disaster could diminish our ability to provide communications service.
Natural disasters could damage or destroy our ground stations, resulting in a disruption of service to our customers. We currently have the technology to help safeguard our antennas and protect our ground stations during natural disasters such as a hurricane, but the collateral effects of disasters such as flooding may impair the functioning of our ground equipment. If a future natural disaster impairs or destroys any of our ground facilities, we may be unable to provide service to our customers in the affected area for a period of time and may incur an impairment charge lowering our operating income.
Risk Factors Relating to Regulation
We are subject to the orbital slot and spectrum access requirements of the ITU and the regulatory and licensing requirements in each of the countries in which we provide services, operate facilities, or license terminals, and our business is sensitive to regulatory changes internationally and in those countries.
The telecommunications industry is highly regulated, and we depend on access to orbital slots and spectrum resources to provide satellite services. The ITU and national regulators allocate spectrum for satellite services, and may change these allocations, which could change or limit how Intelsat’s current satellites are able to be used. In addition, in connection with providing satellite capacity, ground network uplinks, downlinks and other value-added or managed services to our customers, we need to maintain regulatory approvals, and from time to time obtain new regulatory approvals, from various countries. Obtaining and maintaining these approvals can involve significant time and expense. If we cannot obtain or are delayed in obtaining the required regulatory approvals, we may not be able to provide these services to our customers, operate facilities and terminals, or expand into new services. In addition, the laws and regulations to which we are subject could change at any time, thus making it more difficult for us to obtain new regulatory approvals or causing our existing approvals to be revoked or adversely modified. Because the regulatory schemes vary by country, we may also be subject to regulations of which we are not presently aware and could be subject to sanctions by a foreign government that could materially and adversely affect our operations in that country. If we cannot comply with the laws and regulations that apply to us, we could lose our revenue from services provided to the countries and territories covered by these laws and regulations and be subject to criminal or civil sanctions.
Transparent and publicly available regulatory frameworks on frequency and telecommunication licensing may not be available in some jurisdictions.
We anticipate that some authorities may be reluctant to issue blanket telecommunication licenses or even individual licenses due to potential frequency interference concerns. Consequently, authorities in such jurisdictions may examine technical information meticulously to ensure compliance of the Company’s network with applicable regulatory requirements, and may require additional information from the Company concerning applicable standards and possibly type approval of equipment prior to issuing a frequency license, which may result in additional costs or delays in obtaining licenses.
In some jurisdictions, the issuance of a frequency license may be subject to first obtaining a telecommunication license or having a legal entity in the jurisdiction. Further, we cannot completely exclude the possibility of a requirement to install a teleport in some jurisdictions, which may pose a significant barrier to entry for the Company in those jurisdictions.
If we do not maintain regulatory authorizations for our existing satellites, associated ground facilities and terminals, services we provide, or obtain authorizations for our future satellites, associated ground facilities and terminals, and services we provide, we may not be able to operate our existing satellites or expand our operations.
The operation of our existing satellites is authorized and regulated by the FCC in the U.S., Ofcom and UKSA in the U.K., NICTA in Papua New Guinea, the Ministry of Internal Affairs and Communications of Japan, ACMA in Australia and BNetzA in Germany.
We believe our current operations are in compliance with FCC and non-U.S. licensing jurisdiction requirements. However, if we do not maintain the authorizations necessary to operate our existing satellites, we will not be able to operate the satellites covered by those authorizations, unless we obtain authorization from another licensing jurisdiction. Some of our authorizations provide waivers of technical regulations. If we do not maintain these waivers, we will be subject to operational restrictions or interference that will affect our use of existing satellites. Loss of a satellite authorization could cause us to lose the revenue from services provided by that satellite at a particular orbital location or using a particular frequency band, to the extent these services cannot be provided by satellites at other orbital locations or with a different frequency band. If any of our current operations are deemed not in compliance with applicable regulatory requirements, we may be subject to various sanctions, including fines, loss of authorizations, or denial of applications for new authorizations or renewal of existing authorizations.
Our launch and operation of planned satellites require additional regulatory authorizations from the FCC or a non-U.S. licensing jurisdiction. It is not uncommon for licenses for new satellites to be granted just prior to launch, and we expect to receive such licenses for all planned satellites. If we do not obtain required authorizations in the future, we will not be able to operate our planned satellites.
If we obtain a required authorization but we do not meet milestones regarding the construction, launch and operation of a satellite by deadlines that may be established in the authorization, we may lose our authorization to operate a satellite using certain frequencies in an orbital location. Any authorizations we obtain may also impose operational restrictions or permit interference that could affect our use of planned satellites.
If we do not occupy unused orbital locations or use certain frequencies by specified deadlines, or do not maintain satellites in orbital locations we currently use, our rights and/or priority to use these orbital locations and associated frequencies may lapse or become available for other satellite operators to use.
If we are unable to place satellites into currently unused orbital locations by specified deadlines and in a manner that satisfies the ITU or national regulatory requirements, or if we are unable to maintain satellites at the orbital locations that we currently use, we may lose our rights and/or priority to use these orbital locations and associated frequencies, and the locations and frequencies with ITU priority could become available for other satellite operators to use. The loss of one or more of our orbital locations and associated frequencies could negatively affect our plans and our ability to implement our business strategy.
Coordination results may adversely affect our ability to use a satellite at a given orbital location in certain frequency bands for our proposed service or coverage area.
We are required to record frequencies and orbital locations used by our satellites with the ITU and to coordinate with other satellite operators and national administrations the use of these frequencies and orbital locations in order to avoid interference to or from other satellites. The results of coordination may adversely affect our use of satellites at particular orbital locations using certain frequencies, as well as the type of applications or services that we can accommodate. If we are unable to coordinate our satellites by specified deadlines, we may not be able to use a satellite at a given orbital location or use certain frequencies for our proposed service or coverage area. The use of our satellites may also be temporarily or permanently adversely affected if the operation of adjacent satellite networks does not conform to coordination agreements resulting in the acceptable interference levels being exceeded (e.g., due to operational errors associated with the transmissions to adjacent satellite networks).
Given the technical and operational challenges to clearing transmissions in the lower 300 MHz of the C-band spectrum in the contiguous United States on an accelerated basis, there is risk in our ability to meet the deadlines set forth in the FCC Final Order required to receive Acceleration Payments. If we were ultimately to fail to receive the Acceleration Payments, this could have a material and adverse effect on our financial condition and prospects.
On March 3, 2020, the FCC issued the FCC Final Order regarding the clearing process for the 3.7-4.2 GHz C-band spectrum in the U.S. by FSS operators and terrestrial mobile services providers. The FCC Final Order, among other things, provides for monetary enticements for FSS providers to clear a portion of the C-band spectrum on an accelerated basis (the “Acceleration Payments”). The Company is eligible to receive Acceleration Payments for transmission clearing of approximately $1.2 billion and $3.7 billion based on the milestone clearing certification dates of December 5, 2021 and December 5, 2023, with the respective payments expected to be received in the first half of each successive year, respectively, subject to the satisfaction of certain conditions set forth in the FCC Final Order and accompanying rules. In May 2020, the Company filed a written commitment with the FCC electing to accelerate clearing of the C-band spectrum in the U.S., and in August 2020, the Company filed its final C-band spectrum transition plan with the FCC. However, we can provide no assurances as to the acceptability to the FCC of all the terms of our final transition plan.
There are a number of technical challenges to making C-band spectrum available for terrestrial mobile services. In addition to the procurement and launch of seven new satellites, the technical solutions we are implementing include, without limitation, moving services and customers to another portion of the licensed C-band spectrum, implementing filters at earth station antennas, and relocating earth station antennas, all of which result in significant costs. While the FCC’s Final Order addresses reimbursement of such costs, we can provide no assurance that all such costs would actually be reimbursed.
Our ability to meet the deadlines set forth in the FCC Final Order for clearing the C-band spectrum is subject to many factors outside our control, including without limitation, manufacturing and implementation delays resulting from the COVID-19 pandemic. Given the technical challenges and factors outside our control, there is risk as to the Company’s ability to meet the FCC conditions and deadlines in order to receive the Acceleration Payments. If the Company were ultimately to fail to receive the reimbursement costs or Acceleration Payments, this could have a material and adverse effect on the Company’s financial condition and prospects.
Regulation by the FCC and the FAA, which regulates the commercial aviation industry, including the civil aviation manufacturing and repair industries in the U.S., may increase our commercial aviation costs of providing service or require us to change our services.
The commercial aviation industry, including the civil aviation manufacturing and repair industries, are highly regulated in the United States by the FAA. If we fail to comply with the FAA’s many regulations and standards that apply to our activities, we could lose the FAA certifications, authorizations, or other approvals on which our manufacturing, installation, maintenance, preventive
maintenance, and alteration capabilities are based, which could have a material adverse effect on our operating results for our Gogo CA business. In addition, from time to time, the FAA or comparable foreign agencies adopt new regulations or amend existing regulations. The FAA could also change its policies regarding the delegation of inspection and certification responsibilities to private companies, which could adversely affect our Gogo CA business. To the extent that any such new regulations or amendments to existing regulations or policies apply to our activities, our compliance costs would likely increase.
As a broadband Internet provider, the FCC has determined that we must comply with the Communications Assistance for Law Enforcement Act (“CALEA”), which requires communications carriers to ensure that their equipment, facilities and services can accommodate certain technical capabilities in executing authorized wiretapping and other electronic surveillance. Currently, our CALEA solution is fully deployed in our network. However, we could be subject to an enforcement action by the FCC or law enforcement agencies for any delays in complying or failure to comply with, CALEA, or similar obligations. Such enforcement actions could subject us to fines, cease and desist orders, or other penalties, all of which may materially adversely affect our business and financial condition. Further, to the extent the FCC adopts additional capability requirements applicable to broadband Internet providers, its decision may increase the costs we incur to comply with such regulations.
Our failure to maintain or obtain authorizations under U.S. export control and trade sanctions laws and regulations could have a material adverse effect on our business.
The export of satellites and technical data related to satellites, earth station equipment and provision of services are subject to U.S. Department of State, U.S. Department of Commerce and U.S. Department of Treasury regulations. If we do not maintain our existing authorizations or obtain necessary future authorizations under the export control laws and regulations of the United States, we may be unable to export technical data or equipment to non-U.S. persons and companies, including to our own non-U.S. employees, as required to fulfill existing contracts. If we do not maintain our existing authorizations or obtain necessary future authorizations under the trade sanctions laws and regulations of the United States, we may not be able to provide satellite capacity and related administrative services to certain countries subject to U.S. sanctions. Our ability to acquire new satellites, launch new satellites or operate our satellites could also be negatively affected if our suppliers do not obtain required U.S. export authorizations.
If we do not maintain required security clearances from, and comply with our agreements with, the U.S. Department of Defense, or if we do not comply with U.S. law, we may not be able to continue to perform our obligations under U.S. government contracts.
To participate in classified U.S. government programs, we sought and obtained security clearances for one of our subsidiaries from the U.S. Department of Defense. Given our foreign ownership, we entered into a proxy agreement with the U.S. government that limits our ability to control the operations of this subsidiary, as required under the national security laws and regulations of the United States. If we do not maintain these security clearances, we will not be able to perform our obligations under any classified U.S. government contracts to which our subsidiary is a party, the U.S. government would have the right to terminate our contracts requiring access to classified information and we will not be able to enter into new classified contracts. As a result, our business could be materially and adversely affected. Further, if we materially violate the terms of the proxy agreement or if we are found to have materially violated U.S. law, we or the subsidiary holding the security clearances may be suspended or barred from performing any U.S. government contracts, whether classified or unclassified, and we could be subject to civil or criminal penalties.
Risk Factors Relating to the Chapter 11 Proceedings
We are subject to the risks and uncertainties associated with Chapter 11 proceedings.
On May 13, 2020, the Debtors commenced the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. On February 12, 2021, the Debtors filed the Joint Chapter 11 Plan of Reorganization of Intelsat S.A. and Its Debtor Affiliates (as proposed, the “Plan”). While certain of our creditors who are party to that certain plan support agreement, dated as of February 11, 2021 (together with all exhibits and schedules thereto, the “PSA”), have currently committed to support the proposed Plan, we cannot be certain that the Debtors will obtain confirmation or consummation of the proposed Plan (or any Chapter 11 plan at all) or when such confirmation or consummation of a Chapter 11 plan may occur. For the duration of our Chapter 11 proceedings, our operations and our ability to develop and execute our business plan, as well as our continuation as a going concern, are subject to the risks and uncertainties associated with bankruptcy. These risks include the following:
•our ability to develop, obtain support for, confirm and consummate the proposed Plan, another Chapter 11 plan or alternative restructuring transaction;
•our ability to obtain court approval with respect to motions filed in Chapter 11 proceedings from time to time;
•our ability to operate within the restrictions and the liquidity limitations of the DIP Facility and any related orders entered by the Bankruptcy Court in connection with the Chapter 11 Cases;
•our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence;
•our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties;
•our ability to maintain contracts that are critical to our operations;
•our ability to execute our business plan, including the accelerated clearing process of C-band spectrum;
•our ability to attract, motivate and retain key employees;
•the high costs of operating our business while in bankruptcy and related fees;
•the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;
•the expiration, termination or shortening of the exclusivity period for us to propose and confirm a Chapter 11 plan, whether caused by third parties or otherwise;
•the ability of third parties to seek and obtain court approval to appoint a Chapter 11 trustee or to convert the Chapter 11 proceedings to a Chapter 7 proceeding;
•the actions and decisions of our creditors and other third parties who have interests in our Chapter 11 proceedings that may be inconsistent with our plans; and
•uncertainties and continuing risks associated with our ability to achieve our stated goals and continue as a going concern.
Delays in our Chapter 11 Cases increase the risks of us being unable to reorganize our business and emerge from bankruptcy and increase our costs associated with the bankruptcy process.
These risks and uncertainties could affect our business and operations in various ways. For example, negative events associated with our Chapter 11 proceedings could adversely affect our relationships with our suppliers, service providers, customers, employees, and other third parties, which in turn could adversely affect our operations and financial condition. Also, we need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with our Chapter 11 proceedings, we cannot accurately predict or quantify the ultimate impact of events that will occur during our Chapter 11 proceedings that may be inconsistent with our plans.
Operating under Bankruptcy Court protection for a long period of time may harm our business.
Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization. A long period of operations under Bankruptcy Court protection could have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the Chapter 11 proceedings continue, our senior management will be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations. A prolonged period of operating under Bankruptcy Court protection also may make it more difficult to retain management and other key personnel necessary to the success and growth of our business.
Additionally, so long as the Chapter 11 proceedings continue, we will be required to incur significant costs for professional fees and other expenses associated with the administration of the Chapter 11 proceedings. Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to a plan of reorganization. Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently emerged from Chapter 11 proceedings.
The Chapter 11 Cases limit the flexibility of our management team in running our business.
While we operate our businesses as debtor-in-possession under supervision by the Bankruptcy Court, we are required to obtain the approval of the Bankruptcy Court and, in some cases, certain lenders prior to engaging in activities or transactions outside the ordinary course of business. Bankruptcy Court approval of non-ordinary course activities entails preparation and filing of appropriate motions with the Bankruptcy Court, negotiation with creditors and other parties-in-interest and one or more hearings. The creditors and other parties-in interest may be heard at any Bankruptcy Court hearing and may raise objections with respect to these motions. This process may delay major transactions and limit our ability to respond quickly to opportunities and events in the marketplace. Furthermore, in the event the Bankruptcy Court does not approve a proposed activity or transaction, we would be prevented from engaging in activities and transactions that we believe are beneficial to us.
We may not be able to obtain confirmation of a Chapter 11 plan of reorganization, including the proposed Plan.
To emerge successfully from Bankruptcy Court protection as a viable entity, we must meet certain statutory requirements with respect to adequacy of disclosure concerning the plan of reorganization, solicit and obtain the requisite acceptances of such a plan and fulfill other statutory conditions for confirmation of such a plan, which have not occurred to date. The confirmation process may be subject to numerous, unanticipated delays, including a delay in the Bankruptcy Court’s commencement of the confirmation hearing regarding our proposed Plan (or any Chapter 11 plan).
Though we have entered into the PSA with certain of our creditors to support our recently filed Plan, we may not receive the requisite acceptances of constituencies in the Chapter 11 proceedings to confirm the proposed Plan. For example, on February 5, 2021, an ad hoc group of creditors, consisting primarily of holders of Intelsat S.A. convertible senior notes and equity represented by Stroock & Stroock & Lavan LLP (the “Convert Group”), filed a motion (the “Standing Motion”) in the Bankruptcy Court seeking, among other things, (a) standing to prosecute a proposed adversary complaint on behalf of the estate of Intelsat S.A., alleging that Intelsat Jackson is not entitled to receive the Acceleration Payments in connection with our C-band clearing efforts and Intelsat S.A. is entitled to such payments; (b) limited authority to settle claims between the Debtors; and (c) modification of the automatic stay to allow the Convert Group to prosecute the claims in their proposed adversary proceeding. On March 3, 2021, SES Americom, Inc. (“SES”) filed a motion to intervene in the litigation and for standing to advocate, on behalf of the estate of Intelsat US LLC, that Intelsat US LLC is entitled to receive the Acceleration Payments in connection with our C-band clearing efforts (the “Intervention Motion”). If the Standing Motion and/or the Intervention Motion is granted, it may affect our ability to obtain sufficient support to confirm the proposed Plan (or any other Chapter 11 plan) and, if the Convert Group or SES is successful in this litigation, it may cause a material impact on the distributions that holders of certain claims, including holders of the Company’s equity and various debt instruments, would receive on account of such claims.
Even if the requisite acceptances of the Plan are received, the Bankruptcy Court may not confirm the proposed Plan. The precise requirements and evidentiary showing for confirming a plan, notwithstanding any potential rejection by one or more impaired classes of claims or equity interests, depends upon a number of factors including, without limitation, the status and seniority of the claims or equity interests in such rejecting class (i.e., secured claims or unsecured claims or subordinated or senior claims). If a Chapter 11 plan of reorganization is not confirmed by the Bankruptcy Court, it is unclear whether we would be able to reorganize our business and what, if anything, holders of claims against us would ultimately receive with respect to their claims.
Even if the Plan or another plan of reorganization is confirmed by the Bankruptcy Court, it may not become effective because it is subject to the satisfaction of certain conditions precedent (some of which are beyond our control). There can be no assurance that such conditions will be satisfied and, therefore, that a plan of reorganization will become effective and that we will emerge from the Chapter 11 Cases as contemplated by a plan of reorganization. If emergence is delayed, we may not have sufficient cash available to operate our business. In that case, we may need new or additional post-petition financing, which may increase the cost of consummating a plan of reorganization. There can be no assurance of the terms on which such financing may be available or if such financing will be available. If the transactions contemplated by a plan of reorganization are not completed, it may become necessary to amend the plan of reorganization. The terms of any such amendment are uncertain and could result in material additional expense and result in material delays to the Chapter 11 Cases. If we are unable to successfully reorganize, we may not be able to continue our operations.
Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.
We face uncertainty regarding the adequacy of our liquidity and capital resources. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with our Chapter 11 proceedings and expect that we will continue to incur significant professional fees and costs throughout our Chapter 11 proceedings. In addition, we must comply with the covenants of our DIP Facility and other agreements associated therewith, in order to continue to access our borrowings thereunder. We cannot assure you that cash on hand, cash flow from operations and the DIP Facility will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 proceedings until we are able to emerge from the Chapter 11 proceedings.
Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things: (i) our ability to comply with the terms and conditions of our DIP Facility and associated agreements, (ii) our ability to comply with the terms and conditions of any cash collateral order that may be entered by the Bankruptcy Court in connection with the Chapter 11 proceedings, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to develop, confirm and consummate a Chapter 11 plan or other alternative restructuring transaction, and (vi) the cost, duration and outcome of the Chapter 11 proceedings.
The PSA is subject to significant conditions and milestones that may be difficult for us to satisfy.
There are certain material conditions we must satisfy under the PSA, including the timely satisfaction of milestones in the Chapter 11 Cases, which include the confirmation of the Plan and the consummation of the restructuring transactions thereunder. The satisfaction of such conditions is subject to risks and uncertainties, many of which are beyond our control.
As a result of the Chapter 11 proceedings, our financial results may be volatile and may not reflect historical trends.
During the Chapter 11 proceedings, we expect our financial results to continue to be volatile as restructuring activities and expenses, contract terminations and rejections, and claims assessments significantly impact our condensed consolidated financial statements. If we emerge from Chapter 11, the amounts reported in subsequent condensed consolidated financial statements may
materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.
We may be subject to claims that will not be discharged in the Chapter 11 proceedings, which could have a material adverse effect on our financial condition and results of operations.
The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to May 13, 2020, or before confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization and/or (ii) would be discharged in accordance with the terms of the plan of reorganization. Any claims not ultimately discharged through the plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.
The Debtors may be unable to comply with restrictions imposed by the agreements governing the DIP Facility and the Debtors’ other financing arrangements.
The agreements governing the DIP Facility impose a number of obligations and restrictions on the Debtors. The Debtors’ ability to borrow under the DIP Facility is subject to the satisfaction of certain customary conditions precedent set forth therein. Covenants of the DIP Facility include general affirmative covenants, as well as negative covenants such as prohibiting us from incurring or permitting debt, investments, liens or dispositions unless specifically permitted. Failure to comply with these covenants would result in an event of default under the DIP Facility and permit the lenders thereunder to exercise remedies under the loan documentation for the DIP Facility. The Debtors’ ability to comply with these provisions may be affected by events beyond their control and their failure to comply, or obtain a waiver in the event the Debtors cannot comply with a covenant, could result in an event of default under the agreements governing the DIP Facility and the Debtors’ other financing arrangements.
We may experience increased levels of employee attrition as a result of the Chapter 11 proceedings.
As a result of the Chapter 11 proceedings, we may experience increased levels of employee attrition, and our employees likely will face considerable distraction and uncertainty. A loss of key personnel or material erosion of employee morale could adversely affect our business and results of operations. Our ability to engage, motivate and retain key employees or take other measures intended to motivate and incentivize key employees to remain with us through the pendency of the Chapter 11 proceedings may be limited by restrictions on implementation of incentive programs under the Bankruptcy Code. The loss of services of members of our senior management team could impair our ability to execute our strategy and implement operational initiatives, which would be likely to have a material adverse effect on our business, financial condition and results of operations.
In certain instances, a Chapter 11 case may be converted to a case under Chapter 7 of the Bankruptcy Code or dismissed.
There can be no assurance as to whether we will successfully reorganize and emerge from the Chapter 11 proceedings or, if we do successfully reorganize, as to when we would emerge from the Chapter 11 proceedings. If the Bankruptcy Court finds that it would be in the best interest of creditors and/or the Debtors, the Bankruptcy Court may convert one or more of our Chapter 11 bankruptcy cases to cases under Chapter 7 of the Bankruptcy Code or dismiss such case or cases. If one or more Chapter 11 cases is dismissed, the applicable Debtors and the Debtors collectively may be unable to confirm the Plan or otherwise reorganize. In a Chapter 7 proceeding, a Chapter 7 trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code. The Debtors believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to the Debtors’ creditors than those provided for in a Chapter 11 plan or reorganization because of (i) the likelihood that the assets would have to be sold or otherwise disposed of in a disorderly fashion over a short period of time rather than reorganizing or selling in a controlled manner the Debtors’ businesses as a going concern, (ii) additional administrative expenses involved in the appointment of a Chapter 7 trustee, and (iii) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of operations.
Trading in our common shares during the pendency of the Chapter 11 proceedings is highly speculative and poses substantial risks.
All of our indebtedness is senior to the Company’s existing common shares in our capital structure. As we have a substantial amount of indebtedness, any trading in our common shares during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks to purchasers of our common shares.